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[2026] NSWCA 146
respondent. Both appeals dismissed with costs. By majority, the Court upheld the primary judge’s findings and orders, including the equitable charge and compound interest award. Leeming JA would have allowed...
The Court of Appeal majority upheld findings that JMW, rather than Mr Bak personally, was party to a building contract for work on property owned by Mr Bak and Ms Kim. It also upheld findings concerning later transfers of JMW’s sale proceeds, the company’s insolvency, a charge over the property, compound interest, and refusal to excuse Ms Kim from liability. On the key divided issue, the majority considered Ms Kim’s failure to perform her director role causative because it enabled Mr Bak to act without her involvement. Leeming JA disagreed, concluding that the evidence did not prove she would have prevented the transfers. Both appeals were dismissed with costs.
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JM World AU Pty Ltd (JMW) distributed cosmetic products. Its only shareholders and directors were Mr Bak and Ms Kim, who were also spouses and co-owners of the Killara home where the building work took place. Ms Kim held 99% of that property and Mr Bak 1% [5], [107].
The central contract was made on 28 February 2019 with builder Sustainable Design & Construct Pty Ltd (SDC). The paperwork was untidy. The contract identified JMW as “OWNER(S)” and SDC as “BUILDER”, but Mr Bak signed in several places as “Owner”. On the statutory checklist, which specified that a company owner’s signatory should state their capacity, Mr Bak wrote “Director” [6], [119]. An insurance certificate dated 7 March named Mr Bak as “Homeowner” [7]. The primary judge found that JMW, rather than Mr Bak personally, was the contracting party. The appeal court upheld that finding [25], [115], [146].
A dispute over SDC’s work led to an adjudication and then a District Court judgment against JMW for $519,473.41 in December 2020. SDC served a creditor’s statutory demand in January 2021 [8], [109]. JMW sold its Roseville property, and the sale settled on 4 May 2021. On 5 May, Mr Bak caused about $980,000 to be transferred to two Korean companies associated with him and a Japanese company. He retained a further $50,000, later used for a replacement builder at the Killara home [9], [111].
JMW was wound up in June 2021. Its liquidator and JMW sued Mr Bak and Ms Kim. The primary judge found that both directors breached duties in connection with JMW’s entry into the building contract and that Mr Bak breached duties in causing the transfers. The judge also found Ms Kim liable for her failure to perform her director role, declined to relieve her from liability, imposed a charge over the Killara property and awarded compound interest on the payment claims [106], [114].
The Court of Appeal dismissed both appeals with costs. Black J gave the principal reasons and Ward P agreed. Leeming JA agreed on most matters but dissented on whether Ms Kim’s breach caused the loss and on the equitable charge [1]–[3], [102]–[103], [227].
Contracting party. The majority treated the written contract as the starting point. JMW was expressly named as the Owner, and Mr Bak completed the capacity field by writing “Director”. Those features objectively indicated that he signed for the company rather than personally [26]–[29], [146]. The fact that the land belonged to Mr Bak and Ms Kim did not legally require them to be the contracting parties. The Home Building Act recognised a non-contracting owner, and the Court found no provision prohibiting an associated company from contracting with a builder for work on the owners’ land [32], [136]–[141].
The certificate of insurance naming Mr Bak did not change the contract’s identity. The Court considered the insurance requirements under ss 92 and 92C of the Home Building Act, and concluded that the insurance arrangement did not invalidate the building contract or contravene the Act [137]–[142]. Nor did later invoices addressed to Mr Bak outweigh the written contract. They were equivocal and consistent with Mr Bak being JMW’s contact person [144]–[146].
The Court also rejected the argument that the contract failed because it was not executed using s 127 of the Corporations Act. That section provides one means of executing a company document; it was not treated as the exclusive way to bind a company. The Court accepted that Mr Bak had actual authority, arising from the way JMW’s affairs were conducted and Ms Kim’s acquiescence in his role [147]–[151].
Insolvency. The evidence included a due judgment debt to SDC, tax debts, and only $330.01 remaining in JMW’s bank account after the payments and retention. Mr Bak had also accepted that JMW could not pay its creditors after the money was transferred [153]–[156]. The majority found no error in the insolvency conclusion. It added that even success on the specific insolvency grounds would not undo the relevant orders, because insolvency was not necessary to the s 588FDA claim relied on by the primary judge [152].
Causation for Ms Kim. This was the main disagreement. Black J considered that Ms Kim’s inaction and Mr Bak’s actions were connected aspects of the directors’ conduct. In the majority’s view, Ms Kim’s failure to participate left Mr Bak free to make major decisions without the formal or informal involvement of the other director [190], [195]. The majority did not assume that Mr Bak would have lied to or disregarded Ms Kim if she had asked questions or raised concerns. It also considered that she could have taken steps beyond persuasion [196]–[198]. Ward P added that Ms Kim had plainly acquiesced in her husband controlling the company’s financial affairs [3].
Leeming JA took a different view of the evidence. He emphasised that the respondents needed to prove that Ms Kim’s compliance would probably have prevented the transfers. Mr Bak controlled the bank accounts, and there was no finding that anything Ms Kim could have done would have stopped him [76]–[91]. Leeming JA considered it insufficient to infer causation merely from her breach and the fact that Mr Bak’s conduct occurred while she remained inactive [92]–[97].
Charge and interest. The majority upheld the equitable charge because Mr Bak and Ms Kim received the benefit of building work on their home, while JMW incurred the contractual liability to SDC [162]–[164]. The reasoning was that this was, in substance, sufficiently analogous to cases where company resources improve a wrongdoer’s property. Leeming JA would have set the charge aside because, on his view, Ms Kim was not liable and no useful charge over Mr Bak’s 1% share had been shown [102].
The majority upheld compound interest. The different character of Mr Bak’s active conduct and Ms Kim’s omission had not been pursued as a basis for separating their interest liabilities at first instance. The appellate court therefore found no House v The King error in the discretionary award [168]–[170].
The judgment applied, rather than displaced, the existing approach to written contracts described in BH Australia Constructions Pty Ltd v Kapeller. Where a contract is wholly written, identifying the parties is a question of construing the document, not using later conduct to rewrite who contracted. Later conduct may be relevant to other questions, such as variation or estoppel, but the judgment records that no such case was advanced by Mr Bak [122]–[124], [143].
The decision also confirms the distinction between execution under s 127 of the Corporations Act and authority to bind a company. The failure to use s 127 did not itself settle the question of company liability. The Court instead examined actual authority, including implied authority arising from acquiescence [147]–[151]. It applied Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd to the proposition that directors’ conduct can imply actual authority [150].
For statutory compensation, the Court applied the requirement in s 1317H that damage “resulted from” the contravention. Adler states that only damage factually caused by the contravention is compensable under that section [16], [178]. Leeming JA’s reasons stress that a breach alone does not establish causation and that a counterfactual may be required, particularly for an omission [44]–[48], [76]. The majority’s treatment demonstrates that inactive-director cases can turn on fact-specific inferences about what would have happened had the director performed their duties [190]–[198].
The judgment also applies the settled appellate approach to discretionary decisions in House v The King. A different possible exercise of discretion is not enough: the appellant must identify a recognised error in the reasoning or result [213]–[214]. No such error was found in the refusal of relief under ss 1317S or 1318, or in the compound interest award [170], [214]–[220].
The decision does not establish that every inactive director is liable for another director’s transactions, nor that every company liability benefiting a director’s property supports a charge. The causation issue divided the Court, and the charge reasoning is tied to the particular combination of company liability and property benefit.
At [26], Leeming JA identifies the starting point: “The starting point is the identification of the parties on the third page of the Contract: JMW (as ‘OWNER(S)’) and SDC (as ‘BUILDER’).” In plain English, the contract itself named the company and builder, so the analysis began with those written labels rather than the ownership of the land or later invoice practices.
At [29], Leeming JA points to Mr Bak’s entry of “Director” beside the capacity field. That detail mattered because the form specifically asked for the signatory’s capacity when the owner was a company. The Court treated it as objective evidence that he was signing for JMW.
At [143], Black J explains why later conduct could not retrospectively change the identity of the contracting parties. His Honour recognised that later conduct might, in another case, amount to variation or estoppel, but no such case was put here. At [144], he adds that the later invoices were equivocal and could not overcome the contract’s written terms.
At [16], Leeming JA quotes Adler’s rule that “only the damage which as a matter of fact was caused by the contravention” can be compensated under s 1317H. Put simply, proof of a director’s breach is not enough by itself. The claimant must connect that breach to the loss.
At [93], Leeming JA states his dissenting conclusion: “The onus to establish causation rests on the respondents. I am unpersuaded that this Court should make the finding that they seek.” This captures his view that the respondents had not proved that Ms Kim’s compliance would have prevented the payments.
At [195], Black J gives the majority’s contrasting view. The directors’ conduct was “properly understood as comprising conduct of both Ms Kim and Mr Bak”. The majority treated her continuing inaction as part of the circumstances that enabled the transactions, not as an unrelated failure.
At [164], Black J explains the charge. The owners had received the benefit of work for which JMW had incurred liability, and that was sufficient to support the lien in the circumstances. The significance is that the majority did not require proof that JMW’s cash directly paid for the work that increased the property’s value.
The contract analysis is most relevant where a wholly written agreement identifies a company as a contracting party, but a director signs in a way that could be read personally, the work concerns property owned by someone else, and later documents or conduct point in another direction. The judgment gives particular significance to the contract’s named parties and a signatory’s stated capacity [26]–[30], [146]. It also indicates that evidence of later conduct should not be treated as changing contractual identity simply because invoices, insurance documents or communications use another name [143]–[146].
The causation discussion is relevant to claims against a director who did not make the impugned payment but allegedly failed to perform basic oversight. The factual questions include whether that director had a practical ability to participate in decisions, whether the other director would probably have responded to questions or objections, whether the director could have taken further steps, and what evidence supports the counterfactual [76]–[91], [190]–[198]. The division between the judges means the judgment should not be reduced to a single universal answer for inactive-director cases.
The equitable-charge reasoning is relevant where company liability funds or facilitates work that benefits directors’ or shareholders’ property. Here, the majority relied on the owners’ benefit from the work and JMW’s corresponding liability [162]–[164]. The dissent highlights a potential limit: the position may be different where a person whose share of the property would be charged is found not liable, or where the remaining charge over another owner’s small interest is not shown to be useful [102].
The relief discussion applies where a director relies on honesty, illness or reduced capacity. Those matters were considered, but they were weighed against the consequences for the company and creditors and the director’s benefit from the work [204]–[220]. The judgment does not say that illness is irrelevant. It says that the primary judge’s consideration of it did not make the refusal of relief appealably erroneous on these facts.
The supplied judgment contains no account of later judicial treatment of Kim v JM World AU Pty Ltd; Bak v JM World AU Pty Ltd. It was decided on 28 July 2026, and the text does not cite any subsequent decision that applied, followed, distinguished or otherwise treated it. Accordingly, no claim about its later treatment can be made from the supplied material.
The judgment itself describes earlier treatment of BH Australia Constructions Pty Ltd v Kapeller. It records that the primary judge referred to first-instance decisions following that analysis, including Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd, Infigo II Pty Ltd v Linmas Holdings Pty Ltd, Tregida v Pasma Holdings Pty Ltd and Kapp Consulting Pty Ltd v Lawfinance Ltd [124]. The Court of Appeal then applied the BH Australia approach to the contract before it [143]–[146].
On causation, Black J applied Adler and considered DSHE Holdings, while Leeming JA distinguished DSHE Holdings in his counterfactual analysis [16], [46]–[47], [195]. Those are the judgment’s relationships with earlier authority, not evidence of how later courts have treated this appeal.
The split on Ms Kim’s causation leaves the practical boundaries of liability for inactive directors fact-sensitive. The majority relied on inferences about how Mr Bak would have responded to questions, objections or further steps. The dissent considered those inferences insufficient without evidence establishing that Ms Kim would probably have prevented the transfers [86]–[97], [190]–[198]. The judgment therefore leaves open how much evidence is required in a future case where one director controls the company’s bank accounts and another has failed to participate.
The majority’s broader observation that a director may take steps beyond raising concerns appears at [198]. The judgment mentions convening a directors’ meeting and, ultimately, resigning and advising ASIC by comparison with Re Regional Express Holdings Ltd. It does not determine which steps would be required in different circumstances, or how the practical ability to take them affects causation.
The equitable-charge issue may also require further development. The majority considered JMW’s liability for work benefiting the owners’ property sufficient in substance, although it recognised that the position was not the same as the cases where a plaintiff’s money directly acquired or improved an asset [158]–[164]. Leeming JA’s proposed result raises the further question of how a charge should operate where liability is established against only one owner, especially where that owner holds a small share [102].
Finally, the judgment notes that the compound interest issue was not fully argued below and that the distinction between active and omission-based breaches was not raised before the primary judge [21]–[22], [168]–[170]. It therefore does not settle how interest should be assessed where different defendants’ breaches have different characteristics or where evidence is led about actual financing costs.
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Kim v JM World AU Pty Ltd (in liq); Bak v JM World AU Pty Ltd (in liq) [2026] NSWCA 146
Hearing dates: 18 and 19 June 2026
Date of orders: 28 July 2026
Decision date: 28 July 2026
Before: Ward P at [1]
Leeming JA at [4]
Black J at [104]
Decision: Appeals dismissed with costs
Catchwords: CONTRACTS — construction and interpretation — where wholly written contract — dispute as to identity of party to contract — effect of Home Building Act 1989 (NSW), circumstances of execution of contract and post-contractual conduct
CORPORATIONS — whether primary judge erred in finding that the company was insolvent
EQUITY — equitable charges and liens — contribution to acquisition or improvement of another’s property — whether primary judge erred in imposing an equitable charge over the property
JUDGMENTS AND ORDERS — interest — where directors breached statutory and fiduciary duties — whether primary judge erred in award of compound interest
CORPORATIONS — directors and officers — directors’ duties — inactive director — whether inactive director’s breach of duty causative of company’s loss — factual inferences that should be drawn from evidence before primary judge
CORPORATIONS — directors and officers — relief from liability under ss 1317S and 1318 of the Corporations Act 2001 (Cth) — whether primary judge erred in exercise of judicial discretion to not relieve director from liability
Legislation Cited: Building and Construction Industry Security of Payment Act 1999 (NSW)
Companies Code, s 556
Corporations Act 2001 (Cth), ss 127, 588FB, 588FDA, 588FDB, 588FE, 1317H, 1317S, 1318
Corporations Law, s 232
Evidence Act 1995 (NSW), s 140
Home Building Act 1989 (NSW) ss 18B, 18D, 92, 92C, 94
Supreme Court Act 1970 (NSW), s 75A
Cases Cited: Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131
Angus Carnegie Gordon (in his capacity as liquidator of Lyon Form Pty Ltd (in liq)) v Leon Plant Hire Pty Ltd (in liq) (2015) 16 ASTLR 185; [2015] NSWSC 397
Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430; [2011] FCA 1003
Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023
BH Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367; [2019] NSWSC 1086
Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; (1991) 6 ACSR 464
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Data Transfer Services Pty Ltd v White (2023) 111 NSWLR 25; [2023] NSWCA 16
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91
DSHE Holdings Ltd (recs and mgrs) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd (2022) 405 ALR 70; [2022] NSWCA 165
Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd [2020] NSWSC 1137
Fred Caterson Champions Inc t/as Fred Caterson Champions v Hills Shire Council [2026] NSWCA 68
House v The King (1936) 55 CLR 499; [1936] HCA 40
Infigo II Pty Ltd v Linmas Holdings Pty Ltd [2023] NSWSC 755
JM World Au Pty Ltd (in liq) v Kim [2025] NSWSC 995
JM World Au Pty Ltd (in liq) v Kim (No 2) [2025] NSWSC 1199
Kapp Consulting Pty Ltd v Lawfinance Ltd (Formerly Justkapital Ltd) [2019] FCA 1760
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722
Lewis v Australian Capital Territory (2020) 271 CLR 192; [2020] HCA 26
Metal Manufacturers v Lewis (1988) 13 NSWLR 315
Re Cummings Engineering Holdings Pty Ltd [2014] NSWSC 250
Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40
Re Regional Express Holdings Ltd [2026] NSWSC 756
Sheahan (as liquidator of SA Service Stations (in liq)) v Verco (2001) 79 SASR 109; [2001] SASC 91
Sheahan v Verco [2002] SASC 68
Southern Cross Interiors Pty Ltd (in liq) v DCT (2001) 39 ACSR 305; [2001] NSWSC 621
Standard Chartered Bank v Antico (Nos 1 & 2) (1995) 38 NSWLR 290
Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536
Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15
Tregida v Pasma Holdings Pty Ltd (t/as Pasma Electrical) [2021] FCA 721
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15
Category: Principal judgment
Parties: Proceedings 2025/374980
Eun Hee Kim (Appellant)
JM World AU Pty Ltd (in liq) (First Respondent)
Barry Anthony Taylor in his capacity as liquidator of JM World AU Pty Ltd (in liq) (Second Respondent)
Proceedings 2025/430847
Yeong Jeen Bak (Appellant)
JM World AU Pty Ltd (in liq) (First Respondent)
Barry Anthony Taylor in his capacity as liquidator of JM World AU Pty Ltd (in liq) (Second Respondent)
Representation: Counsel:
Proceedings 2025/374980
Mr A E Maroya (Appellant)
Mr S Golledge SC / Mr J Baird (Respondents)
Proceedings 2025/430847
Mr J R Young (Appellant)
Mr S Golledge SC / Mr J Baird (Respondents)
Solicitors:
Proceedings 2025/374980
Tsavdaridis Lawyers (Appellant)
Duggan Legal (Respondents)
Proceedings 2025/430847
Kim & Associates (Appellant)
Duggan Legal (Respondents)
File Number(s): 2025/374980; 2025/430847
Publication restriction: Nil
[This headnote is not to be read as part of the judgment]
JM World AU Pty Ltd (“JMW”) was a wholesale distributor of cosmetic products. The Appellant in each matter, Mr Bak and Ms Kim, were JMW’s two directors and its only shareholders.
On 28 February 2019, a contract for building work at a Killara Property, a residential property owned by Ms Kim as to 99% and by Mr Bak as to 1%, was made (“Contract”). At first instance, the primary judge found the Contract was made between JMW and the builder (“SDC”) and held that JMW incurred a liability to SDC for unpaid invoices for work done at the Killara Property (“Building Works Claims”).
After SDC had obtained a judgment debt against JMW and served a creditor’s statutory demand seeking to wind up JMW in reliance on that unpaid debt, on 5 May 2021, Mr Bak caused JMW to make three payments, totalling approximately $980,000 to two companies associated with him in South Korea and to a third company in Japan (“Payments and Retention Receipt Claims”).
The primary judge held that both Mr Bak and Ms Kim breached their directors’ duties by entry into the Contract and were liable to JMW in that regard. His Honour also declared that the payments by JMW to the South Korean and Japanese companies were uncommercial transactions, unreasonable director related dispositions, creditor defeating dispositions and voidable dispositions under the Corporations Act 2001 (Cth) (“Act”), and ordered that Mr Bak and Ms Kim pay JMW certain amounts in respect of that breach.
Each of Mr Bak and Ms Kim now appeals those orders on different grounds.
The principal issues in Mr Bak’s appeal are whether the primary judge erred in: (i) finding that the Contract was with JMW and not Mr Bak personally; (ii) failing to have regard to s 127 of the Act and Ms Kim’s failure to execute the Contract; (iii) finding that JMW, which was not the owner of the relevant property, could become a party to a contract describing it as the owner of the property where it derived no benefit from that contract; (iv) failing to have regard to objective evidence, including the builder nominated for home owners warranty insurance in concluding that the contracting party was JMW; (v) failing to consider evidence that the Contract was for the benefit of the home owner and that SDC was aware that the home owner was not JMW; (vi) finding that the subsequent conduct of the parties was consistent with Mr Bak being the contact person for JMW and not the contracting party; (vii) finding that JMW was insolvent; (viii) finding that monies were owed to the Australian Taxation Office by JMW; (ix) not considering whether JMW was insolvent in the event it was not the contracting party with SDC; (x) making a declaration that the Killara Property was subject to an equitable charge; and (xi) awarding compound interest in respect of the Payments and Retention Receipt Claims.
The principal issues in Ms Kim’s appeal are whether the primary judge erred in: (i) finding that Ms Kim breached her directors’ duties in relation to actions taken by Mr Bak; (ii) implicitly finding or failing to find Ms Kim’s assumption of her role as a director had a causal link to any losses suffered by JMW; (iii) not relieving Ms Kim from liability under ss 1317S or 1318 of the Act; (iv) taking into account irrelevant considerations in finding that it would be perverse to relieve Ms Kim from liability from the Building Works Claims; (v) failing to make relevant findings as to whether, on the medical evidence, Ms Kim ought be fairly excused from any contravention; (vi) failing to have regard to his Honour’s own findings at [15] and [16] of the Primary Judgment; (vii) failing to have regard to Ms Kim’s ignorance and lack of involvement in relation to the Contract; (viii) failing to have regard to matters relevant to the identity of the party to the Contract; (ix) failing to have regard to evidence that receipts for payments made by Ms Kim to SDC were issued in the name of the “Bak Family” and not JMW; and (x) awarding compound interest in respect of the Payments and Retention Receipt Claims.
The Court (Black J, Ward P agreeing, Leeming JA dissenting in part) held, dismissing the appeals with costs:
In Mr Bak’s appeal*,* a**s to issues (i)-(vi) and in Ms Kim’s appeal*,* as to issues (vii)-(ix) (per Black J, Ward P and Leeming JA agreeing)
(1) The primary judge did not err in finding that JMW and not Mr Bak personally was party to the Contract. The Contract, on its face, identified JMW as the contracting party. The fact that JMW was named as the contracting party in the Contract and Mr Bak was named as party to the insurance certificate does not invalidate the insurance contract or contravene any provision of the Home Building Act 1989 (NSW). Even if post-contractual conduct is relevant to determining the identity of the parties to the Contract, that conduct was equivocal and did not displace the inference arising from the Contract itself that JMW rather than Mr Bak was party to the Contract: [25], [115].
BH Australia Constructions Pty Ltd v Kapeller (2019) 100 NSWLR 367; [2019] NSWSC 1086, applied.
(2) The primary judge did not err in his finding with respect to s 127 of the Act. The Contract was executed in the name of JMW and signed by Mr Bak, who had actual authority to enter into the contract: [33], [147].
Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; (1991) 6 ACSR 464, applied.
In Mr Bak’s appeal*,* a**s to issues *(*vii)-(ix) (per Black J, Ward P and Leeming JA agreeing)
(3) The primary judge did not err in finding that JMW was insolvent on 5 May 2021 when the monies were dissipated to the South Korean and Japanese companies. The evidence established that JMW owed debts to the Australian Taxation Office and owed a judgment debt to SDC. In any event, even if these three grounds of appeal succeeded, they would not provide a basis for setting aside the primary judge’s orders in respect of the Payments and Retention Receipt Claims: [34], [152].
In Mr Bak’s appeal*,* a**s to issue (x) (per Black J, Ward P agreeing, Leeming JA dissenting)
(per Black J, Ward P agreeing)
(4) Where Mr Bak and Ms Kim obtained the benefit of the work done by SDC on the Killara Property, for which JMW had incurred the corresponding liability, that is sufficient to support the equitable charge that the primary judge ordered: [2], [157].
Angus Carnegie Gordon (in his capacity as liquidator of Lyon Form Pty Ltd (in liq)) v Leon Plant Hire Pty Ltd (in liq) (2015) 16 ASTLR 185; [2015] NSWSC 397, considered.
(per Leeming JA dissenting)
(5) Where Ms Kim is not liable to the Respondents, land of which she is 99% owner should not be subjected to a charge and that charge should be set aside. The charge on Mr Bak’s land should also be set aside where such a charge on 1% of the land was not submitted to be useful or appropriate: [102].
In Mr Bak’s appeal*,* a**s to issue (xi) and in Ms Kim’s appeal*,* as to issue (x) (per Black J, Ward P agreeing and Leeming JA dissenting in part*)*
(per Black J, Ward P and Leeming JA agreeing*)*
(6) The primary judge did not err in the award of compound interest in respect of the Payments and Retention Receipt Claims. Whilst there is force in the observation that Ms Kim’s breach of duty involved her failure to perform her duties and Mr Bak’s breach involved positive breaches, where the parties did not seek to draw that distinction before the primary judge, it does not displace the basis of the primary judge’s award of compound interest: [2], [99]-[101], [165].
In Ms Kim’s appeal*,* a**s to issues (i)-(ii) (per Black J, Ward P agreeing, Leeming JA dissenting)
(per Black J, Ward P, Leeming JA agreeing*)*
(7) Issue (i) in Ms Kim’s appeal has no separate work to do, as indicated by counsel in oral submissions: [35], [171].
(per Black J, Ward P agreeing)
(8) There was no error in the primary judge’s approach to causation, which implicitly treated Ms Kim’s breach of duty as causative of JMW’s loss in respect of the Payments and Retention Receipt Claims. The directors’ conduct that brought about the impugned actions is properly understood as comprising conduct of both Ms Kim and Mr Bak. Mr Bak was able to engage in his conduct due to Ms Kim’s continuing acquiescence. Had Ms Kim fulfilled her duties, she would have been put on notice of the risk of loss to JMW and would have taken steps to prevent Mr Bak’s actions. It was not pleaded at first instance, nor did the primary judge find, that Mr Bak was dishonest by nature or generally prone to act with impropriety and the Court should not assume that Mr Bak would have lied to Ms Kim or overridden or rejected any inquiry that she would have made had she performed her duties. In any event, the steps Ms Kim could have taken were not limited to dissuading Mr Bak from taking the impugned actions: [3], [175].
Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131, applied.
Metal Manufacturers v Lewis (1988) 13 NSWLR 315; Standard Chartered Bank v Antico (Nos 1 & 2) (1995) 38 NSWLR 290; DSHE Holdings Ltd (recs and mgrs) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd (2022) 405 ALR 70; [2022] NSWCA 165 (“DSHE Holdings”), considered.
Re IW4U Pty Ltd (in liq) (2021) 150 ACSR 146; [2021] NSWSC 40, referred to.
(per Leeming JA dissenting)
(9) The primary judge did not make any findings as to the causal consequences of Ms Kim’s breach. Where there were no findings that anything Ms Kim might have done would have prevented the payments to the South Korean and Japanese companies; Mr Bak had control of JMW’s bank accounts and Ms Kim did not have access to them; and Mr Bak, although not found to be dishonest, was someone who would act in flagrant disregard of the interests of creditors, the Respondents have failed to establish that had Ms Kim complied with her duties, she would have prevented the transfers made by Mr Bak: [36].
DSHE Holdings, distinguished.
In Ms Kim’s appeal, as to issues (iii)-(vi) *(*per Black J, Ward P agreeing, Leeming JA dissenting)
(per Black J, Ward P agreeing*, Leeming JA not deciding**)*
(10) There is no basis for finding an error in the primary judge’s exercise of judicial discretion to not relieve Ms Kim from liability under ss 1317S or 1318 of the Act under the House v The King standard. The primary judge recognised the relevance of Ms Kim’s health issues and gave substantial weight to those issues; and the case law does not indicate that a director who is ill and unable to perform her duties for a long period and who neither resigns nor performs her duties would have a defence under the Act or that that matter would provide a basis for relief under ss 1317S and 1318: [208]–[214].
Fred Caterson Champions Inc t/as Fred Caterson Champions v Hills Shire Council [2026] NSWCA 68; House v The King (1936) 55 CLR 499; [1936] HCA 40, applied.
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91, referred to.
(11) The consequence of relieving Ms Kim from liability was not an irrelevant consideration (and was plainly a relevant consideration) to the exercise of the primary judge’s discretion, and the primary judge properly weighed it against other relevant circumstances, including Ms Kim’s health issues: [215]–[217].
(12) The ground that the primary judge failed to make relevant findings as to whether, on the medical evidence, Ms Kim ought fairly be excused from liability has no substance, where the primary judge engaged, in detail, with the relevant medical evidence: [218]–[220].
(13) The primary judge had regard to his own findings in the Primary Judgment at [15]–[16] in reaching his conclusion as to relief from liability, and the decision to not relieve Ms Kim from liability does not equate to a failure to have regard to such matters: [221].
WARD P: I have had the opportunity of considering the comprehensive reasons of Black J, who would dismiss both appeals with costs and the carefully considered reasons of Leeming JA, who has reached a different conclusion on the issue of causation in Ms Kim’s appeal and, while he would dismiss Mr Bak’s appeal, would set aside in its entirety the order charging the land owned jointly by Ms Kim (as to 99%) and Mr Bak (as to 1%).
I agree with Black J, for the reasons his Honour gives, that the appeal brought by Mr Bak should be dismissed. I also agree with Black J, again for the reasons that his Honour gives, that Ms Kim’s appeal should be dismissed. I would dismiss the challenge made by Ms Kim and Mr Bak as to the imposition of an equitable charge over their land and to the award of compound interest, for the reasons explained by Black J. Accordingly, I agree with the orders proposed by Black J.
On the issue of causation, which is the principal point of departure between the reasons of my colleagues, in addition to or in amplification of the first of the reasons given by Black J on the issue of causation, I place emphasis on the fact that Ms Kim clearly acquiesced in her husband having control of the company and its financial affairs. Ms Kim readily accepted that her husband did everything in relation to the company, describing this as her husband’s job and saying that the running of the business had nothing to do with her. Although she did not accept that she had left all of the decisions up to her husband, that was the obvious conclusion to be drawn from her evidence. In that sense, Ms Kim did not simply permit or enable Mr Bak to take the steps that he unilaterally took in relation to the company (as explained by Black J below) but she acquiesced in and implicitly consented thereto. This is consistent with the observation of Black J at paragraph 195 below that it was the conduct of both Mr Bak and Ms Kim that contributed to the loss. For that reason, and the more detailed reasons given by Black J, Ms Kim’s breach of her duties as a director was in my opinion causative of the company’s loss.
LEEMING JA: The factual and procedural background has been described by Black J, whose reasons I have had the considerable advantage of reading in draft, and with which the following presupposes familiarity.
The essence of the dispute giving rise to these appeals may be restated as follows. Mr Bak and Mrs Kim (I have used the name she prefers) are husband and wife. They co-own their home in Killara, as tenants in common in proportions Mr Bak as to 1% and Mrs Kim as to 99%. They also co-own their company, JM World AU Pty Ltd (“JMW”), in equal shares, and are its sole directors, although it is now in liquidation. Mr Bak signed a contract (“Contract”) with a builder, Sustainable Design & Construct Pty Ltd (“SDC”), to perform substantial building work with an estimated cost of some $2.16 million on the couple’s home. Mr Coddington owned SDC.
The Contract was written and in a standard form issued by the Master Builders Association but on any view of the matter was problematic as to its parties. The inconsistencies may be summarised as follows:
The front page was a coversheet.
The second page contained a warning required by the Home Building Act 1989 (NSW) and was signed by Mr Bak as “Owner” and Mr Coddington as “Builder”.
The third page identified the owner as “JM World AU PTY LTD” with Mr Bak as the contact, and the builder as SDC with Mr Coddington as the contact. It also identified the site address in Killara being the land owned by Mr Bak and Mrs Kim. This page also included the execution page, in the form “SIGNED by the OWNER(S)” next to which Mr Bak signed, and “SIGNED by the BUILDER” next to which Mr Coddington signed. The clause was dated 28 February 2019.
The fourth page, importantly, include a “STATUTORY OWNER’S CHECKLIST AND QUESTIONS” which was followed by a Note: “Where the Owner is a company or partnership or the contract is to be signed by an authorised agent of the owner, the capacity of the person signing the contract, eg director, must be inserted”. Near that note, Mr Bak signed his name, under which he wrote “Director”.
A schedule in the contract identified the commencement dated as 5 March 2019. A contract of insurance required under the Home Building Act and dated 7 March 2019 nominated Mr Bak as the “Homeowner”.
Thereafter the parties fell into dispute, leading to an adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) and a District Court judgment against JMW in the amount of some $520,000 in December 2020.
In March 2021, JMW sold a separate property in Roseville. The net proceeds of sale of some $1.034 million were paid into a JMW bank account on 4 May 2021. On 5 May 2021, the large majority (some $984,000) was transferred to two Korean companies (JM World Co Ltd and Skin & Co Ltd) in amounts of some $610,000 and $231,000), of both of which Mr Bak was a director and shareholder, and to a third Japanese company (Aster Biyou Co Ltd) in the amount of some $143,000. The sum of $50,000 was retained and was used to pay the replacement builder retained to complete the work on the home. I shall follow the usage of the primary judge and refer to “JM World Korea”, “Skin & Co Korea” and “Aster Biyou”.
As Black J explains, the correct legal conclusion is that JM World AU Pty Ltd was a party to the building contract, although the position is far from clear, and it is easy to see how the opposite view might be reached.
Although the written submissions at one stage flagged a submission that might challenge the principles and rules governing the identification of parties to written contracts, no such challenge was pursued. This aspect of the appeal can and should be resolved on the straightforward basis that the issue is whether, having regard to the objective effect of the contractual documents in their context including the statutory context which explicitly informed important aspects of them (notably the statutory warnings and checklist), Mr Bak is to be taken to have bound himself personally or instead to have bound JMW. I agree with the analysis given by Black J, which comprehensively addresses all of the submissions advanced, and add the following only to emphasise the matters which are, to my mind, of greatest significance.
First, the starting point is the identification of the parties on the third page of the Contract: JMW (as “OWNER(S)”) and SDC (as “BUILDER”).
Secondly, the execution clause favours the conclusion that JMW and SDC were the contracting parties. Both Messrs Bak and Coddington have signed, on behalf of the Owner and Builder respectively, in their own names, without any other words denoting office or authority.
The evidence makes it plain beyond argument that Mr Coddington had signed on behalf of SDC before the document reached Mr Bak, and an important aspect of the context against which the legal effect of Mr Bak’s signature falls to be assessed is that plainly Mr Coddington’s signature without more bound SDC. To my mind, it is no great step to conclude that Mr Bak’s signature without more bound JM World AU Pty Ltd, which was also named as the contracting party. No submissions were advanced by the appellants to address the inconsistency which would manifest if their submission were accepted, namely, that Mr Bak signed binding himself personally while Mr Coddington’s signature bound his company.
Thirdly, it is to be borne in mind that Mr Bak’s signature on page 4 was accompanied by the capacity “Director” at the end of the “STATUTORY OWNER’S CHECKLIST AND QUESTIONS”. This is impossible to reconcile, except as a mistake, with any position other than that JMW was a party.
I am conscious that one possibility is that, by mistake, an architect retained in connection with the development entered the name of JM World AU Pty Ltd on the form of the partially executed contracts supplied to him by Mr Coddington, and that mistake was not detected. There may perhaps be other reasons why it may have suited Mr Bak for his company to make large payments to SDC. But in the absence of any claim for rectification, no utility is served in exploring those matters any further.
Counsel for Mrs Kim confirmed that the first ground of her appeal, which on its face challenged the finding of breach, was to be understood as having no content beyond her challenge to the finding of causation.
Ground 2 of Mrs Kim’s appeal was:
His Honour erred at [258] in implicitly finding or alternatively failing to find the Appellant in the assumption by her of any role of a director of the First Respondent, had any causal link to any losses found to have been suffered by the First Respondent as a result of the actions by the Second Defendant below as a director and controlling mind of the First Respondent.
The primary judge found that the entry into the Contract was itself a breach of duty by Mr Bak and Mrs Kim. That finding is probably a consequence of the failure of either defendant to plead ratification or informed consent to the decision of the company owned and controlled by them to incur contractual obligations to SDC to do construction work on land owned by them. The directors and co-owners of JMW were at liberty to cause their company to do just that, so long as JMW was solvent, and it was not suggested that entry into the Contract two years earlier was sufficiently causally connected with the transfers made on 5 May 2021 which were the immediate cause of the claimed loss. At least as I understood the respondents’ submissions, the critical event was not the entry into the contract, but the payment away by Mr Bak of the proceeds of sale of the Roseville land by Mr Bak on 5 May 2021. Aside from the challenge to insolvency, there was no dispute that this occurred at a time when he was bound to have regard to the interests of creditors: Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at 730 and see Data Transfer Services Pty Ltd v White (2023) 111 NSWLR 25; [2023] NSWCA 16 at [42].
As flagged at the outset, it is important to bear in mind that the respondents advanced quite distinct claims of breach of duty against each of Mr Bak and Mrs Kim. The claim against Mr Bak was of conscious, active commission of breaches of fiduciary and statutory duties, and the likely unavailability of monies paid overseas brought about the consequence that the company was unable to pay the judgment debt obtained to SDC in the District Court.
The claim against Mrs Kim was not that she was involved in or complicit with Mr Bak’s breach of duty. Instead, it was an allegation of breach by omission. It was said that Mrs Kim was in breach by failing to take “the simplest of steps, such as speaking to her husband about the company’s affairs, what contracts or agreements it had made with third parties including with SDC or, even more obviously, in May 2021 what was to happen with the sale proceeds of the company’s property and what steps if any would be made to ensure all creditors of the company got paid”. It was said that those failures “enabled” Mr Bak’s positive misconduct. That assertion carries with it the proposition that had Mrs Kim taken those steps, Mr Bak would have behaved in some different way. Indeed, the allegation necessarily goes further, to the effect that had Mrs Kim taken those steps, JMW would have been able to pay the judgment debt. The causal potency, so it is alleged, of Mrs Kim’s breach carries with it the result that she should personally be liable to JMW to account for the entirety of the loss occasioned by reason of Mr Bak’s misconduct.
I am thus satisfied that Ms Kim also breached her duties as a director both under the Act and at general law.
The loss suffered by JM World by reason of the breaches of directors’ duties is the quantum of the outstanding liability which JM World still has to SDC. This amount is $519,473.41.
The reasoning reflects the fact that causation in relation to Mr Bak’s breaches is straightforward. But as I sought to indicate at the outset, causation in relation to Mrs Kim’s breaches is far from straightforward.
The primary judge returned to this at [255]-[258] (which includes the paragraph nominated in the ground of appeal):
Mr Bak took no account of the interest of creditors. He acted in flagrant disregard of them in causing the three payments to be made overseas and in retaining the $50,000 for himself.
In the case of Ms Kim, the case is, again, one of omission. At the time of the payments and retention, Ms Kim:
(a) was aware that many years earlier she had been informed by her husband that she had been made a director of JM World “just in case”;
(b) had never really taken any role whatsoever in relation to JM World;
(c) from time to time she had executed documents on behalf of JM World;
(d) was aware that Skin & Co AU had been incorporated and that she was a director of it and that it had entered into a lease with JM World in relation to the Roseville Property;
(e) was aware from what her husband had told her that the business in Australia was not doing well; and
(f) was aware that the Roseville Property was being sold.
Ms Kim did nothing to inquire of Mr Bak as to what was happening with the proceeds from the Roseville Property or what arrangements were in place (if any) with respect to the payment of JM World’s creditors.
Again, in my view, Ms Kim fell well short of the core irreducible requirement of a director. Much was said by counsel for Mr Bak and adopted by counsel for Ms Kim that Ms Kim had no knowledge of the contracting party in relation to the Killara Property or the payments overseas or the retention of the $50,000. I do not regard this lack of knowledge as assisting Ms Kim on the issue of breach of duty. Her lack of knowledge was in the context of never taking any role whatsoever in relation to JM World. Concluding that she is not acting in breach of her duties would run counter to the well-established law of the minimum expected of directors.
I did not understand there to be any dispute as to the applicable principles. It was necessary, in order to sustain the judgments against Mrs Kim for compensation based on the breaches of her statutory duties as director, for the respondents to establish that the payments made on 5 May 2021 “resulted from” her breaches within the meaning of 1317H of the Corporations Act.
It is not sufficient for the plaintiffs to establish breach of duty at a time when the company was insolvent. Nor is the requirement brushed aside by the assertion that a loss “flowed from” a breach. In DSHE Holdings, this Court rejected an attempt by a liquidator to argue that once it had “established Mr Potts’ breach of s 180 and the $11.826 million loss flowing from it, the evidentiary onus shifted to Mr Potts to break the causal connection between his contravention and the relevant damage”, saying at [279]:
This is a problematic submission. The reference to establishing the “loss flowing” from the contravention implicitly accepts the point in issue, that is, that it did bear the onus of making out that but for the contravention the money would not have been paid. And the reference to an evidentiary onus was a distraction. The company had the legal burden of establishing its claim.
Ultimately, the liquidator’s appeal in DSHE Holdings was allowed, because this Court was satisfied that “the more probable outcome” on the counterfactual position (which was that each of defendants had told the board that they could not support the proposal to declare a dividend) was that the dividend would not have been declared. This Court’s reasons at [281]-[296] engaged at length with the testimonial evidence (which was scant), the company’s financial position (as would have been known to the rest of the board at the time) and the objective probabilities of what would have occurred. As was noted at [281] by reference to Lewis v Australian Capital Territory (2020) 271 CLR 192; [2020] HCA 26 at [36] and [151], in the counterfactual world where the defendants were not in breach of duty and disclosed to the board their views that the dividend should not be paid, it is to be presumed that in answering questions posed by the board, the defendants would have acted lawfully, and thus the board would have been given a truthful explanation.
There is a significant difference between the loss in DSHE Holdings and the loss sustained by JMW. The loss in DSHE Holdings was the declaration of a dividend by board resolution, following breaches of duty by the managing director and chief financial officer in reporting the true financial position of the company. Neither of the defendants could by their own conduct effect a board resolution declaring a dividend. The facts are quite different from those in this appeal, where Mr Bak’s breaches of duty in “flagrant disregard” of the interests of creditors were themselves the conduct which caused loss.
There were no findings that anything that Mrs Kim might have done would have prevented the payments made by Mr Bak to JM World Korea, Skin & Co Korea or Aster Biyou, or his retention of $50,000 to pay the new builder. Without such findings, the judgment against Mrs Kim cannot stand.
Recognising this, the respondents served a notice of contention, by which they asked this Court to make sufficient findings to sustain that judgment. This Court is of course empowered by s 75A(10) of the Supreme Court Act 1970 (NSW) to make any finding which might have been made by the primary judge.
The notice of contention did not identify the particular findings of fact which the respondents asked this Court to make.
In this Court, the entirety of the respondents’ written submissions in support of the notice of contention was as follows:
A case such as this, where the allegation is one of breach by omission, is an example of one where an assessment of the question of causation will involve positing of counterfactuals. [Mrs Kim’s] contention, supported by Mr Bak, that her inaction made no difference invites that approach. The plaintiffs’ submission to the Primary Judge was that there were steps which a reasonable person could have taken to discover and prevent the losses (see Black AB v3 p1289 J-S) and that her failure to do so enabled Mr Bak, by positive action, to expose JMW to the building work loss and the wrongful disbursal of its money. That Mrs Kim’s conduct (or more correctly, her inaction in breach of a duty to act) might be seen as simply enabling or facilitating Mr Bak’s positive misconduct does not mean it was not an effective cause of those same wrongs. A loss can, as a matter of “common sense and experience”, be a result of more than one contributing fact, matter or circumstance. The law of causation is no less robust. In March v E & MH Stramare Pty Ltd (1991) 171 CLR 506, Mason CJ observed (at page 509):
“Thus, at law, a person may be responsible for damages when his or her conduct is one of a number of conditions sufficient to produce that damage.”
In the present case, Mrs Kim’s failure to take the simplest of steps, such as speaking to her husband about the company’s affairs, what contracts or agreements it had made with third parties including with SDC or, even more obviously, in May 2021 what was to happen with the sale proceeds of the company’s property and what steps if any would be made to ensure all creditors of the company got paid, enabled Mr Bak’s positive misconduct. If Mrs Kim had fulfilled her duties as a director by making appropriate enquiries as to JMW’s dealings with third parties and as to the use of its money, she would have been on notice of the risk of loss to JMW by reason of Mr Bak’s conduct. The relevant counterfactual in those circumstances is that she could and, consistent with her obligations, would have been able to prevent JMW’s money from being sent overseas when local creditors had not been paid in full.
The first and third sentences in the last paragraph assert that if Mrs Kim had complied with her duties, that would have prevented Mr Bak’s positive misconduct. They fall short of explaining just why that would be so. I shall return to this below.
In oral submissions, the essence of what was put was as follows:
GOLLEDGE: In a case by omission, where one is considering hypotheticals, a proper approach to, in our submission at least, the question of causation is to focus on what she ought to have done, so that’s the breach, and then to assess the relationship between that and the loss that was suffered.
LEEMING JA: Your written submissions put it at the level of “would have”, would have prevented the transfer, and I’m just testing how that that flies.
GOLLEDGE: It would’ve prevented the transfer in one of any number of ways. Positive action by her or salutary conduct by her husband in response to - can I hand up to your Honours - it’s mentioned in pt B of our authorities, which I would normally read from. But can I just give your Honours a copy of extract from Alexander v Cambridge Credit. There is also a deal in Henville v Walker in the High Court about causation. We’ve cited that in pt A and the relevant passages.
The part that I wanted to draw your Honours’ attention, when the Court of Appeal, in this case, were considering this question of causation - and by reference to the concept in tort novus actus interveniens. There’s no formal pleading of that, but the practical response that’s been put below, namely, that there’s nothing that Ms Kim could have done, because her husband would’ve done whatever he wanted to do in any event, is a similar plea.
What the Court of Appeal said - of McHugh JA, in particular - examined the role of conduct by – it’s called intervening conduct of a third party. How does that bear upon the causation point - at the bottom of p 361 and 362. The relevance of his Honour’s observations to this case is this: the risk that would have been mitigated, had Ms Kim acted in accordance with her breaches of duty, is that--
WARD P: In accordance with her duties.
GOLLEDGE: With her duties - is that, were she not to do that, the risk is that Mr Bak will act in an unconstrained way, which is exactly what happened. That is the risk that would be militated or mitigated by the performance of her duty. That’s why the conduct - or what his Honour said there - such conduct by, in our case, Mr Bak, doesn’t constitute a break in the chain of causation, because it’s the very risk that proper performance of the duties would protect one from. So that’s the causation effect. She fails to take those steps, and Mr Bak is then left with a free hand, and the company suffers as a consequence.
One has to accept this degree of analysis wasn’t undertaken at first instance. There was not a great deal said about causation at first instance. His Honour identified the five or six matters he had to decide. The submission was really put by reference, rather, to the 1317 and 1318 arguments, but it’s raised at the appeal level, and that’s our submission, that your Honours would find - well, there was a finding of causation, and your Honours would, for the reasons that I’ve sought to articulate, not say that such a finding was not open to his Honour.
LEEMING JA: Mr Golledge, can I just say this in the interest of transparency – I’m sorry to slow you down. What is prompting my questioning on this issue is, in part, the evidence which was the subject of her cross examination just before the incident that his Honour recalls, when there was an adjournment for a little bit of time. The witness became distressed. That included pleading guilty to the non-compliance with the ASIC fill out the forms, and a bond was imposed by the Local Court. Her evidence about that was, when she received something as serious as a court attendance notice, she showed it to her husband and her husband said, “Don’t worry, I’ll look after it,” and then weeks pass and she’s told to go to the Local Court and plead guilty. It’s that sort of aspect of the relationship that leads me to raise the questions I have about how you make out your factual causation.
GOLLEDGE: I’m making submissions, as I say, about hypotheticals and there is that evidence but in Henville v Walker Hayne and Gaudron JJ on this point, and although it wasn’t an essential part of the judgment both made observations and the passages are referred to in pt A, that the onus is on the third party to prove, that is, on this question of what is the effect of third party conduct on this causation then is that, if there is to be a claim of a novus actus interveniens, for instance, or that there’s been a break in chain of causation by conduct such that the wrongdoer cannot be held responsible for the loss, the onus is on that party to prove that conduct or that intervening act or that incident or feature of the facts which breaks the chain of causation, and that’s why I said at the start there was no attempt to argue for such a finding down below and so none was made that particularly addressed this claim.
That is, Mr Bak did not say words to the effect, “I don’t care what my wife would have said.” “The money was going overseas,” he would have said, “to pay creditors.” That’s what I wanted to say about ground 2 and this causation point.
Mr Young initially made a submission – well, what could this woman do? This is a going to the breach question. What would a reasonable person, acting reasonably, what could she have done? She could have asked Mr Pak what the company, what agreements or dealings the company was having at any stage up until the winding up. She just never did that. One shouldn’t infer that he would have lied to her. Her behaviour is not simply that she didn’t challenge. She didn’t ask. That’s the omission point. And one never knows what might have been told to her by her husband if she had asked any questions at all. But it shouldn’t be inferred he would have lied to her.
And the submission was also put - well, what could she have done in May 2021? Well, she knew this property was being sold. Her affidavit says, she was told by her husband the business hadn’t been going very well and creditors had to be paid.
What a reasonable person would have done, and there’s no reason to think Ms Kim couldn’t have done, was to ask, well, what’s happening with the money and to take some steps to satisfy herself that those people who were owed money by the creditor might be paid. So there are steps that we say could have been taken and weren’t, and in those circumstances there was a breach, and as I say, then it shouldn’t be inferred that merely because her husband, in effect, took the number one positive role in the business, that he would have lied to her in response to a direct question.
In order to make the findings which the respondents seek – without which this ground of appeal must be upheld – it is necessary to review the entirety of the evidence which bears upon the issue. This Court does so without the benefit of seeing and hearing either Mrs Kim or Mr Bak give evidence. However, in the absence of any challenge to the conclusions of the primary judge as to their credit, this Court will proceed on the basis that Mrs Kim at all times acted honestly. The trial judge’s assessment of Mr Bak’s evidence was more nuanced. On the one hand, his Honour said it was to be approached with considerable caution and in a critical respect – whether the transfers made on 5 May 2021 were to creditors of JMW – his evidence was not accepted (the foregoing reflects findings made by the primary judge at [16], [17] and [228]). On the other hand, in his Honour’s subsequent judgment on costs and interest, his Honour made a less unfavourable observation, to which I shall return.
Mrs Kim’s evidence at trial was that her husband told her, “Due to Covid the business is suffering. There are suppliers to pay which are late. I think we are going to have to sell the warehouse in Roseville and close the business in Australia”. She responded “Okay. As you see fit”.
Mrs Kim also said that she knew nothing of the payments in early May 2021 to JM World Korea, Skin & Co Korea and Aster Biyou. However, when she had been living in South Korea, she knew that JM World Korea and Aster Biyou were suppliers of cosmetics and hair products to JMW.
Mrs Kim’s affidavit included the following:
After the Accident however, again I no longer had any knowledge of the specific dealings between those entities and [JMW] and I did not know the details of whether [JMW] owed them money and, if so, how much (other than that [Mr Bak] told me that there was money available after the sale of the Roseville Property to pay suppliers).
I did not know anything about these payments at the time or at any time until after the liquidation of [JMW]. I did not know the details of the payments or what happened to the funds of [JMW]. I did not authorise these payments. Nor did I have electronic access to the bank account or accounts of [JMW] as did not know the login and password details
[Mr Bak] never discussed the details of these payments with me at the time or afterwards. All I knew was that, based on what [Mr Bak] previously told me in one of our phone calls, I assumed the suppliers of [JMW] were going to be paid with the sale proceeds from the Roseville Property. The first time that I was given information about the details of these payments was during my examination process.
Even if I was aware of them at the time (which I was not), I could not have stopped these payments from being made. That is because:
a. [Mr Bak] never sought my authority for any payments to the suppliers of [JMW];
b. [Mr Bak] was always responsible for managing the financial affairs of [JMW];
c. as far as I was aware, [Mr Bak] was the only person with access to the bank account of [JMW]; and
d. [Mr Bak] was the person who dealt with the company’s funds and paid debts of the company.
As I explained above, [Mr Bak] was the person in our relationship who has always dealt with all of our financial affairs and dealings.
Mr Bak also gave evidence that each of the three companies was a trade creditor of JMW. He confirmed as much, repeatedly, in his examination.
The liquidator prepared an expert report which explicitly proceeded on the two alternative bases that the three companies were or were not trade creditors. Either way, the company was insolvent in May 2021. The liquidator did not express a view as to whether the three companies were trade creditors.
Mrs Kim was cross-examined over two days. The transactions from the proceeds of sale of the Roseville land were addressed at the end of her cross-examination. It was put to her, positively, that her husband told her that the JMW business was going to close down. Her answers were that “the business wasn’t doing well” and “the business was actually struggling a lot”.
There followed this evidence:
Q. Now, do you recall being at all concerned that there were outstanding suppliers who were owed money by the business?
A. INTERPRETER: I do not remember ever being told about that.
Q. I want to suggest to you that you were told. And I want to ask you, did you take any steps, having been told that, to ascertain who was owed money by the business and in what amounts?
A. INTERPRETER: I never did that.
Q. Right. Now, did you have any contact with the lawyer or the solicitors who were handling the sale of the warehouse for the company?
A. INTERPRETER: I never did that.
Q. Did you appreciate that on sale and after payment of the bank mortgage debt on the property, there would be about a million dollars available?
A. INTERPRETER: No. I didn’t know.
Q. Did you ask your husband how much money might become available to the company upon sale of the property?
INTERPRETER: To the company?
Q. Yes. To the company on sale of the property.
A. INTERPRETER: I didn’t ask.
Q. And that was because, was it, madam, that you were content to leave all of that up to your husband?
A. INTERPRETER: Yes. My husband would take care of it.
Q. And it wasn’t your practice, at least, to ask him questions about what he was doing with the company?
A. INTERPRETER: I never asked him.
Q. And it wasn’t his practice to seek your permission in respect of steps he was taking in the conduct of the business?
A. INTERPRETER: From memory, in the past 17 years of my marriage, my husband never asked me any question about business.
…
Q. … you left all of the decisions up to your husband.
A. It’s not like I left it to my husband; he did everything.
Q. And you didn’t seek to ask questions of him about any of that?
A. INTERPRETER: To my knowledge, the running the business, it had nothing to do with me. It’s my husband’s - all my husband’s job.
GOLLEDGE: That’s the cross-examination.
It was common ground that Mrs Kim suffers, and at the relevant time in 2021 suffered, from a recognised psychiatric disorder. It is not necessary to set out the details. Mrs Kim moved to Australia with her husband in December 2007. She sustained a traumatic accident in February 2013, and while she was not physically injured, she suffered mental injury.
Mrs Kim’s injury was the subject of expert evidence at trial. The primary judge recorded there was not much difference between the evidence of Mrs Kim’s psychologist, Mr Anning, and the respondents’ psychologist, Mr McQuillen. The primary judge recorded at [107]:
Both Mr Anning and Mr McQuillen agreed:
(a) that Ms Kim was suffering from Post Traumatic Stress Disorder and a Major Depressive Disorder in accordance with DSM-5 criteria during the period February 2019 and May 2021;
(b) that her depressive symptoms became more predominant as her course of illness progressed and that her depressive symptoms were more predominant during the period between February 2019 and May 2021;
(c) Ms Kim’s disorders would have reduced her capacity to be involved in the management of [JMW] and to discharge her duties as a director to the standard that would be expected of a competent director on a day to day basis; and
(d) her disorders would have reduced her capacity to process and retain information, to make decisions and to reason through all the possible consequences of her decisions.
Further, the psychologists agreed that the nature of Mrs Kim’s conditions was that they waxed and waned, with the result that she would sometimes have good days and other times have bad days.
Neither expert had seen Mrs Kim before 2024, and so her condition at that time was a matter of extrapolation. His Honour concluded his recounting and findings in respect of this aspect of the evidence as follows at [110]-[112]:
It is of some significance that Mr McQuillen, in his report of 29 July 2024 concluded that Ms Kim is not fit to function as the manager of a company currently and I expect she would have also not been fit to do so at the relevant time period between 2019 and 2021. Nonetheless her symptoms and severity would have varied, and she would have had awareness of her behaviours and their consequences.
Each only observed Ms Kim for an extremely brief period and did not assess her during the period between February 2019 and May 2021. Thus, it is difficult to rely on their opinions throughout the relevant period, save to conclude that there were days when Ms Kim would not have had the capacity to discharge any duties as a director of JM World. Conversely, there would be some days when she would likely have the capacity to understand that she was signing documents and the like.
These observations of Mr Anning and Mr McQuillen are consistent with my own, albeit extremely brief observations of Ms Kim in the witness box. Ms Kim’s evidence commenced on day two and went into day three of the hearing. During day three, Ms Kim became quite distressed and extremely agitated and at times was incoherent in some of her answers. An extended break was necessary before Ms Kim could continue. Ms Kim’s recollection seemed much poorer on day three than day two.
A striking example of Mr Bak acting unilaterally in relation to matters involving the interests of his wife occurred shortly after the appointment of a liquidator. Mrs Kim received a Court Attendance Notice following her failure to complete a director’s report and to deliver books to the liquidators. She showed the letter to her husband who said, “I will deal with this issue. Leave it with me”. Her evidence was that only afterwards did she learn that JMW was in liquidation. There was no challenge to that evidence.
Ultimately, Mrs Kim pleaded guilty to an offence of not completing the report and not delivering books to the liquidator.
It was put to Mr Bak in cross-examination that the companies were not creditors of JMW, which he denied. The primary judge noted at [17] that there was a “sustained attack” upon him in cross-examination, and a “significant credit attack” upon him in closing submissions, and concluded that he would approach Mr Bak’s evidence “with considerable caution”. The primary judge addressed at [215]-[228] whether the payments made to the Korean and Japanese companies on 5 May 2021 were payments to creditors, and concluded that they were not. His Honour in this respect did not accept Mr Bak’s evidence. That finding was not sought to be challenged on appeal.
However, and importantly for the purposes of the counterfactual, Mr Bak was of the view that the Korean and Japanese companies were creditors of JMW. Mr Bak gave evidence in the liquidator’s examination, and his affidavit, and in cross-examination that the companies were creditors. He went further and supplied various documents purporting to be invoices for the amounts paid.
This was addressed at some length in Mr Bak’s cross-examination. The invoices were tendered at trial. Counsel for the respondents put to Mr Bak in relation to one of the invoices that “you have prepared this yourself for the purposes of this proceeding” and that “this is not a true copy of any document that was received by [JMW] from Aster Biyou”. Mr Bak denied those propositions and gave an explanation.
The primary judge rejected Mr Bak’s evidence on this point, doing so for reasons given at [222]-[227]:
I am not satisfied that JM World Korea, Skin & Co Korea or Aster Biyou were in fact creditors of JM World as at 5 May 2021. I place particular emphasis in this regard on the absence of any record of any such indebtedness in the financial statements for JM World including the most recent general ledger. Mr Bak was unable to provide any sensible explanation as to why the alleged indebtedness was not incorporated into the financial statements.
I am also quite troubled by the circumstances in which the purported invoices were produced. They were not contained in the records produced to the second plaintiff. Mr Bak was not able to produce any when asked in his liquidator’s examination. They were only produced at the time of Mr Bak’s 30 June 2023 affidavit.
These matters cause me to doubt the authenticity of the invoices. Further, the value of the invoices does not appear to support the payments made. The position is complicated by Mr Bak’s inconsistent referencing in his affidavit to the 29 April 2021 purported invoice for ₩531,049,788 which is separately attributed to both Skin & Co Korea and JM World Korea.
In relation to Aster Biyou, I have no reason to doubt Mr Kato’s email. It is wholly uncontradicted. This is in circumstances where Mr Bak is the owner of JM World Korea and Skin & Co Korea. If the contention advanced in the email was said to be false, Mr Bak could presumably have proved this from the records of the Korean companies. Further, as set out at the commencement of these reasons, Mr Bak did serve three affidavits from persons purporting to corroborate his position in relation to the three overseas entities, but these affidavits were not read.
The inescapable inference is that by paying Aster Biyou, Mr Bak was discharging a debt owed by JM World Korea and thus was to his benefit.
Each of these matters enable me to more comfortably infer that which emerges from the other evidence – particularly the absence of any reference to these three companies as creditors in the financial statements – namely that they were not creditors.
The question then is whether this Court should find that Mrs Kim’s breach of duty as a director was sufficiently causally connected with the transfer of funds to the Japanese and Korean companies that she should have to account to the company for that loss. The onus rests on the respondents to show that her breach had consequences. Necessarily the analysis is counterfactual.
First, there was no challenge to the evidence in Mrs Kim’s affidavit as to her inability to obtain access to the JMW funds. Mr Bak had control of the company’s banking accounts, and she did not have access to them.
Secondly, no foundation was laid in cross-examination for what would have happened had Mrs Kim raised the payment of the proceeds of sale with her husband. That is not said by way of criticism. It is difficult to cross-examine many lay witnesses on a counterfactual case, and it would have been extremely difficult, and of limited utility, to attempt to do so through a translator.
Thirdly, what would have happened had she not breached her duties as a director? The respondents emphasised that that inquiry is to proceed on the basis that Mr Bak would not have lied.
On the basis put forward by the respondents, Mrs Kim would have asked her husband what was happening to the proceeds of the sale of Roseville. She knew that JMW had sold the property in March 2021 and may be taken to have known that settlement was to occur in early May 2021. On the assumption that she had complied with her duties as a director, she would have done so in the knowledge that their company was in a perilous financial position, and had an unpaid judgment debt to SDC.
Mrs Kim’s unchallenged evidence was that Mr Bak had told her that “there was money available after the sale of the Roseville Property to pay suppliers”.
An honest answer by Mr Bak would have been that he intended to transfer most of the money to JM World Korea, Skin & Co Korea and Aster Biyou, but he was keeping $50,000 to pay the builder which had replaced SDC. On the view subjectively held by Mr Bak, and maintained in the liquidator’s examination and at trial, he believed that those companies were suppliers, and would have said so.
Mrs Kim knew that JM World Korea and Aster Biyou had, at least formerly, been suppliers of cosmetic and hair products to JMW. Her evidence was that before 2008, when she had been living in South Korea and before her accident, she had known this. There were also historical invoices in evidence supporting this.
If that would have been sufficient to allay the concerns of a director in Mrs Kim’s position, then that is the end of the respondents’ case on causation. The answers are not implausible on their face. I bear in mind that the COVID-19 pandemic has had a serious effect on many businesses, and it is easy to see how a business which imported cosmetic products would be seriously affected, and might have been unable to pay suppliers.
[If] Ms Kim makes her first attempt to engage with the issue and the attempt is brushed off or responded to by “I’ll attend to it”, then, on one view, one at that point raises a second alternate question, which is, what is the duty of a director exercising his or her powers properly if engagement is not successful? That is, can the director then say, “Well, I tried,” and that’s it or does the director have to go further? It may be we don’t have to get into those second order questions. That’s one difficulty with dealing with a hypothetical that is not addressed by the evidence.
I respectfully agree with the difficulties involved in postulating a series of hypothetical contingencies in the absence of evidence. But I have mentioned what I regard as the most obvious possibilities, including subsequent steps which Mrs Kim might, hypothetically, make, in order to demonstrate that it is far from obvious that Mrs Kim would, had she complied with her duties, have prevented Mr Bak from doing what he did. It is to be borne in mind that the respondents seek (and need) a positive finding of fact from this Court in order to maintain the judgment they have obtained against Mrs Kim.
I bear in mind that it may be said that it was the combination of Mr Bak’s positive action and Mrs Kim’s inaction that brought about the loss to the company. I respectfully do not accept that such a characterisation suffices to justify the conclusion that each breach caused the loss. This was not a case of joint enterprise, where all directors agreed as to a course of conduct, such that although the actual acts of transferring the funds were undertaken by one, they are attributed to all, with the result that causation is established against all. I respectfully do not agree that the separate conduct of Mr Bak and Mrs Kim, neither alleged nor established to have been in concert, should be regarded as linked such that the respondents ceased to be obliged to establish a separate causal connection between Mrs Kim’s breach and the loss for which the respondents seek to hold her to account.
The onus to establish causation rests on the respondents. I am unpersuaded that this Court should make the finding that they seek.
For completeness, I return to the statement in the second judgment of the primary judge, when dealing with the claim for compound interest, where his Honour said that “[i]nsofar as it is necessary to establish fraud or misconduct, I am not satisfied that this has been demonstrated in the case of either Mrs Kim or Mr Bak”. It will be obvious from what I have already said that I do not read that statement as undercutting the positive finding that Mr Bak had acted in flagrant disregard of his obligations to creditors. Instead, the statement is to be understood as reflecting his Honour’s failure to find that Mr Bak had in fact fabricated invoices to support his claim. (It will be recalled that his Honour had reservations about the authenticity of the documents, and did not accept Mr Bak’s evidence, but his Honour made no finding of fraud, an approach which is entirely orthodox, and which I would understand to mean that his Honour was not satisfied, having regard to s 140 of the Evidence Act 1995 (NSW) and Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, that there had been actual fraud, while being unable to accept Mr Bak’s positive evidence that the invoices were real.)
I do not think the finding, which may be a generous one, contributes much to the counterfactual analysis that is required. Mr Bak acted in flagrant disregard to creditors without telling his co-director and co-owner of the company anything about it. Have the respondents established that Mr Bak’s conduct would have been different if she had been told and had objected? Perhaps Mrs Kim might have sought to persuade Mr Bak to keep money to pay SDC. The issue is whether this Court should find that, more likely than not, any such attempt would be successful. The respondents ran a case that Mr Bak acted in flagrant disregard of his obligations, and was prepared to manufacture invoices in order to advance his own interests. They provided no reasons, let alone evidence, to suggest that Mrs Kim would have dissuaded him.
On that basis, grounds 4-7 of Mrs Kim’s appeal which challenge the failure to grant relief under ss 1317S and 1318 of the Corporations Act, do not arise. However, I note that there is an important difference between the claim that she be relieved from liability in respect of the payment of money to JM World Korea, Skin & Co Korea and Aster Biyou, and the claim that she be relieved from liability in respect of the retention of $50,000 to pay the new builder. As 99% owner of the land, she would be a direct beneficiary of the work done by the new builder. The position is quite different in relation to the funds paid overseas. That distinction seems not to have been made to the primary judge, and to be fair, it was not raised during the hearing of the appeal. If this point were to matter, I would give consideration to whether the parties should be given an opportunity to be heard further as to it.
A similar point arises concerning the challenge to the award of compound interest. Mr Bak’s breach was flagrant; Mrs Kim’s breach was one of omission. If contrary to my conclusions on ground 2 and Mrs Kim had been liable to account in full to JMW for the amounts paid away by Mr Bak in 2021, then while it may be appropriate for Mr Bak to pay compound interest, it does not without more follow that Mrs Kim should have to pay compound interest. As noted at the outset, the difficulty arose because the parties used the labels “Payment Claim” and “Retention Claim” focussing on the quantum of the claim, thereby disguising the difference between an order that Mr Bak compensate JMW for the amount he transferred away from it on 5 May 2021 plus interest, and an order that Mrs Kim compensate JMW for the amount her omissions enabled Mr Bak to transfer away from it on 5 May 2021 plus interest.
To be fair, that was not raised before the primary judge, and it does not arise on the view I take of ground 2. I respectfully agree with Black J that insofar as Mr Bak has been ordered to pay compound interest, no House v The King error has been made out. In reaching that conclusion, I am conscious that no attention was given at trial to the fact that prejudgment interest accrues at 4% above the cash rate set by the Reserve Bank of Australia, which is likely to exceed the interest which would be earned on the respondents’ funds if they were invested in a bank, and in many cases it may also exceed the interest that would accrue if the respondents were required to borrow funds, perhaps even on an overdraft. But this case was not run on the basis of any evidence about the actual cost to any party being out of pocket.
It is to be borne in mind that the decision to award interest as his Honour did was a discretionary one. In the absence of argument on the points mentioned above, I do not see that House v The King has been identified.
For those reasons, I would allow Mrs Kim’s appeal in part. The orders I propose would set aside the charge in order 4, the judgment in order 11, the costs order insofar as it concerns her in order 12 and the negative declaration that she not be excused in order 13 of the orders made on 13 October 2025. I would also permit Mrs Kim to be heard as to costs, both at first instance and in this Court. I would dismiss Mr Bak’s appeal, with costs, save that I would set aside the order charging the land insofar as it affects his 1% interest in the land.
BLACK J: By Notice of Appeal filed on 13 January 2026 in proceedings 2025/430847, Mr Bak appeals from orders made by the primary judge (Pike J) on 13 October 2025. By a second Notice of Appeal filed on 13 January 2026 in proceedings 2025/374980, Ms Kim, who is Mr Bak’s wife, also appeals from those orders.
The proceedings at first instance concerned, first, the entry into the Contract for building work at a residential property at Killara in New South Wales (“Killara Property”) owned by Ms Kim as to 99% and by Mr Bak as to 1%, under which (the primary judge held) JMW incurred a liability to SDC in the amount of $519,473.10. In his judgment delivered on 3 September 2025 (JM World Au Pty Ltd (in liq) v Kim [2025] NSWSC 995) (“Judgment”), the primary judge referred to the claims regarding this matter as the “Building Works Claims”. The second aspect of the claim at first instance involved the dissipation of JMW’s property by payments on 5 May 2021 to two companies in South Korea which were associated with Mr Bak and a company in Japan, after SDC had obtained a judgment for $519,473.41 against JMW arising from registration of an adjudication, and had served a creditor’s statutory demand seeking to wind up JMW in reliance on that unpaid debt. The primary judge referred to those claims as the “Payments and Retention Receipt Claims”.
The primary judge held that both Mr Bak and Ms Kim breached their duties as directors of JMW by causing it to enter into the Contract and that Mr Bak and Ms Kim were liable to JMW in the amount of $680,695.12, inclusive of pre-judgment interest in that regard. His Honour also declared that the payments by JMW to the South Korean and Japanese Companies were uncommercial transactions, unreasonable director related dispositions, creditor defeating dispositions and voidable dispositions within the meaning of ss 588FB, 588FDA, 588FDB and 588FE of the Corporations Act 2001 (Cth) (“Act”) and ordered that Mr Bak and Ms Kim pay JMW different amounts, both in excess of $1.3 million, in respect of that breach. His Honour also made several other orders. Each of Mr Bak and Ms Kim have appealed from the orders made by the primary judge on different grounds. It will be convenient to refer, first, to the factual background and then to the several grounds of appeal, largely referring to the evidence in respect of those grounds of appeal.
I now turn to the factual background to the proceedings. JMW carried on business as a wholesale distributor of cosmetic products until it ceased trading in April 2021. Mr Bak and Ms Kim were the two directors of JMW and its only shareholders.
On 28 February 2019, a Contract for the renovation of the Killara Property was made, on the Appellants’ case below and on appeal, between Mr Bak and SDC; and on the primary judge’s findings, between JMW and SDC. The primary judge noted the work then carried out by SDC on the Killara Property and noted that several invoices issued by SDC were paid by Mr Bak, or by Ms Kim on his behalf, including in cash. When JMW, or Mr Bak and Ms Kim, failed to pay SDC’s invoice 25 for work done at the Killara Property, SDC suspended work at that property and issued subsequent claims for work done. SDC then obtained an adjudication certificate stating that the adjudicated amount was $514,967.85 on 1 December 2020 (Judgment [81]).
On 3 December 2020, JMW entered into an exclusive agency agreement for the sale of a property which it owned and from which it carried on business, in Roseville in New South Wales (“Roseville Property”). On 17 December 2020, Mr Bak also caused a new company to be incorporated, Skin & Co AU Pty Ltd (“Skin & Co AU”), which carried on the same business as JMW had done. Ms Kim was its only director, secretary and shareholder and took those roles at Mr Bak’s request. On 22 December 2020, SDC applied to register the adjudication certificate as a judgment debt in the District Court, and on 23 December 2020, the District Court entered judgment against JMW in favour of SDC for $519,473.41. On 12 January 2021, SDC served a creditor’s statutory demand on JMW for that judgment debt. Mr Bak did not pursue a motion filed on 10 June 2026 in this appeal which sought leave to introduce a new ground of appeal to the effect that JMW was not truly indebted to SDC in the amount of that judgment debt.
On 5 February 2021, Skin & Co AU entered into a three-year lease with JMW to rent the Roseville Property, which was signed by Ms Kim and Mr Bak on behalf of JMW and by Ms Kim on behalf of Skin & Co AU. On 12 March 2021, a Contract for the Sale and Purchase of Land was entered into between JMW as vendor and third-party purchasers in respect of the Roseville Property at a sale price of $1.8 million, with completion to take place in 42 days. That sale contract was signed by Ms Kim and Mr Bak on behalf of JMW. The primary judge found that JMW ceased to trade in April 2021, and Ms Kim had been told by Mr Bak some time prior to this that JMW was “not doing well” (Judgment [91]).
The sale of the Roseville Property settled on 4 May 2021. After several intervening transactions, Mr Bak caused JMW to make three payments on 5 May 2021 totalling approximately $980,000 to two companies associated with him in South Korea and to a third company in Japan which was a supplier to the South Korean companies. Mr Bak retained $50,000 of the proceeds of sale of the Roseville Property, which was later applied to building work done by a new builder at the Killara Property.
“… breach of common law and statutory directors’ duties [by Mr Bak and Ms Kim] in:
(a) causing [JMW] to enter into the [C]ontract with SDC when it had no funds to pay for the construction work, thereby exposing [JMW] to a liability to SDC for no benefit to it;
(b) interposing [JMW] between them and SDC as a party to the [C]ontract to the detriment of [JMW] and to their benefit;
(c) by the making of the payments on 5 May 2021, removed from [JMW] funds with which to pay the amount of the District Court judgment thereby leaving it liable to be wound up; and
(d) benefitted and profited themselves from the value of the construction works undertaken on the Killara Property by SDC pursuant to the [C]ontract when in a position where their personal interests were in conflict with their duties.
The essential case was really one of causing [JMW] to be the contracting party for no benefit to it. Mr Bak’s response to this was really no more (putting to one side the quantum of [JMW] funds used) than [JMW] was not the contracting party but it was him.”
First, Mr Bak appeals (Bak Appeal grounds 1-6) against aspects of the primary judge’s finding that Mr Bak and Ms Kim caused JMW to incur liabilities to SDC in breach of their general law and statutory duties. Mr Bak contests the primary judge’s underlying finding that JMW rather than Mr Bak was party to the Contract on several grounds, turning upon the operation of the Home Building Act 1989 (NSW) (“HBA”), the circumstances of execution of the Contract and evidence as to the parties’ conduct after the Contract was executed. Mr Bak does not contest the finding of breach of duty if the Contract was with JMW.
I first set out the primary judge’s factual findings and his analysis as to this issue. There is no real controversy as to these events, although their legal effect is contested. The primary judge found (Judgment [43]) that, on 26 February 2019, the architect retained by Mr Bak for the renovations, Mr Choi, sent an email to Mr Bak which stated:
“Everything has been progressing well here with your project.
We have been working with Sean [Coddington of CDC] to get the details of the contract prepared for signing.
We will send through the contract tomorrow for execution.
As per timeline discussed when we last met, Sean and his team are ready to commence building work next Monday 4th of March assuming we can execute the contract promptly.”
“Thank you for good news.
I’m waiting for the contract.
If you send me the document, I’ll take care of it quickly.
I attach you the payment details of our project. please check it.
and send our company detail of tax invoice too.
If you have any question, please let me know.”
Mr Bak attached two documents to that email, containing corporate details in relation to JMW and a list of payments made or to be made by Mr Bak to Mr Choi in relation to the project. Mr Bak was cross-examined as to his intent in providing the corporate details in relation to JMW to Mr Choi, which plainly led Mr Choi to understand (whether rightly or wrongly) that JMW was to be party to the Contract. The primary judge noted (Judgment [47]) that Mr Bak’s evidence was that he wanted only Mr Choi’s four invoices to be addressed to JMW, although I interpolate that there was no apparent rationale for taking that approach for the architect’s but not the builder’s invoices. In any event, the primary judge rightly noted (Judgment [48]) that it was not necessary to make a finding as to what Mr Bak’s subjective intention was in this regard, where the relevant issue was the identity of the party to the Contract. His Honour also found that Mr Choi caused the details of JMW to be inserted into the Contract, reflecting his understanding of Mr Bak’s request.
His Honour then noted (Judgment [50]ff) that:
“The form of contract was prepared by Mr Choi using the Master Builders Association Head Contract Cost Plus (Residential) standard form at the time. Mr Choi provided the contract he prepared to Mr Coddington, most likely via a Dropbox link. Mr Coddington completed, by hand, the details in relation to SDC and signed the contract.
It would then appear that Mr Coddington returned the document that he had signed to Mr Choi. Mr Choi then provided it to Mr Bak.
Mr Bak signed in three places as “Owner” on the first page (page (i)) of the agreement headed “WARNING FOR THE PURPOSES OF THE HOME BUILDING ACT 1989”.
Mr Bak then signed as “Owner” on page iii of the agreement above Mr Coddington’s signature.
At the conclusion of the section of the contract headed “Statutory Owner’s Checklist and Questions” on page iv, a note appears in the following terms:
‘Where the Owner is a company or partnership or the contract is to be signed by an authorised agent of the owner, the capacity of the person signing the contract, eg director, must be inserted:
Signature
Name [print]
Capacity [print]’
Next to signature, Mr Bak signed. He then inserted his name next to “Name” and wrote “Director” next to capacity.
On the particulars page of the contract, where Mr Coddington inserted SDC’s details, the details of [JMW] have been typed in next to “Owner”. Mr Bak has been described as the “Contact”. His email address has also been inserted.”
“Mr Bak denied that he was ever aware that [JMW] was the named party to the contract and said that it was a mistake. To the extent that it is relevant I do not accept this evidence of Mr Bak. The inescapable inference from the completion of the “Statutory Owner’s Checklist and Questions” and particularly Mr Bak writing “director”, is that he must have been aware that [JMW] was, or was going to be, named as the Owner in the contract. There is no other reason for the completion of the checklist in the manner that it was completed by Mr Bak.”
“The submissions on behalf of [JMW] did not contend that the contract was with Mr Bak personally but did point out that the contract was with [JMW] and not with the owner of the Killara Property. If Mr Bak and Ms Kim were treated as the owner, it was contended that the [Building and Construction Industry Security of Payment Act [1999] (NSW) (“SOPA”)] would have no application as it would be an “owner/occupier construction contract”.”
“(a) the authorities which have stated that post-contractual evidence may be used to identify the parties to a contract, do not apply when the contract is wholly in writing and which is not said to be a sham or to involve fraud or is sought to be rectified in equity (see [90]–[91]);
(b) in the case of an agreement wholly in writing, the terms are all identified in the document. The question of parties is one of construing the terms which are already identified, rather than identifying the terms themselves — construction and identification are vitally different processes: Lym International Pty Ltd v Marcolongo (2011) 15 BPR 29,465; [2011] NSWCA 303 at [141] –[143] see [92]; and
(c) in the case of a wholly written contract, the written contract will disclose the names of the parties. Questions may arise as to the identity of the parties. Evidence may be adduced of mutually known facts to identify the meaning of a descriptive term — including the denotation of a named party. A second class of case of where there is said to be a mistake in the words used to identify a party — parol evidence is admissible to establish what was intended. (see [93]–[96]).”
“But in all such cases, the question is one of construction or interpretation. There can be no issue that parol evidence may be used to give legal meaning to the label used in the contract to identify the contracting parties. However, I respectfully doubt that post-contractual conduct can be directly relevant to that question. Reasoning to the effect that post-contractual conduct is relevant on the issue of, say, whether an offer has been accepted by conduct, is inapplicable to a case such as the present.
Ordinarily, the wholly written contract will have come into existence upon execution of the document. Conceivably, it may have been held in escrow. However, at such time as the contract comes into existence, the parties to which contractual obligations attach will, according to the objective theory of contract, be fixed.
I fail to see how the identity of the parties to a contract which came into existence in January can be affected by conduct which occurs in March, consistently with the objective theory of contract. If that were so, then it must be possible at least in theory for there to be a wholly written contract purportedly between A and B entered into in January which, but for some conduct by B in March, is as a matter of law between A and B, but, when regard is had to B’s March conduct, is as a matter of law between A and C. Phenomena like that arise in physics — most famously, Schrödinger’s cat — but cannot arise consistently with the objective theory of contract. The parties to the contract are determined at all times — including in February — once the contract has been formed.”
The primary judge also noted that Leeming JA’s analysis in BH Australia had been followed in several first instance decisions: Ferngrove Pharmaceuticals Australia Pty Ltd v HLW Investments Pty Ltd [2020] NSWSC 1137 at [38],[42]; Infigo II Pty Ltd v Linmas Holdings Pty Ltd [2023] NSWSC 755 at [54]; Tregida v Pasma Holdings Pty Ltd (t/as Pasma Electrical) [2021] FCA 721 at [47]; Kapp Consulting Pty Ltd v Lawfinance L**td (Formerly Justkapital Ltd) [2019] FCA 1760 at [47]. There was, at best, a faint challenge by Mr Bak as to the correctness of that approach in this appeal.
The primary judge then comprehensively identified objective matters that were relevant to identifying the parties to the Contract, initially without reference to post contractual conduct and then having regard to such conduct. His Honour observed (Judgment [136]) that:
“The relevant objective matters are:
(a) the contract was in the form of the Master Builders Association standard contract for residential work which defines the parties to the contract as the Builder and the Owner, although the contract does not contain any warranty or promise that the named “Owner” is in fact the owner of the premises on which the residential building work is to be conducted;
(b) at the time the contract was executed on behalf of SDC, no details had been included of who the “Owner” was;
(c) at the time that Mr Bak executed the contract, it is not clear whether the details of the “Owner” had similarly not been inserted. Mr Bak’s contention is that it was not and this was most likely done by or on behalf of Mr Choi before it was sent back to SDC. Whether it had been inserted or not, at the time Mr Bak executed it, I am satisfied, if it be relevant on who is the contracting party, that Mr Bak was aware that [JMW] was to be named as the owner;
(d) Mr Bak executed the contract in the places set out above;
(e) Mr Bak was named as the contact for the Owner — [JMW] — in the contract;
(f) all of the details, including [JMW], were on the executed contract when it was sent back to Mr Coddington by way of exchange;
(g) all invoices etc issued by SDC to Mr Choi and from Mr Choi to Mr Bak made no reference to [JMW], only Mr Bak;
(h) insurance, as required under the Home Building Act 1989 (NSW) was subsequently taken out by SDC naming Mr Bak as “Homeowner”;
(i) the owners of the property were at all times Ms Kim as to 99/100 and Mr Bak as to 1/100;
(j) no contention was made by Mr Bak in relation to the SOPA adjudication that [JMW] was not a party to the contract — it appears to have been accepted at this time that it was; and
(k) there is nothing in the financial statements for [JMW] to suggest that the costs of the construction work were recorded as expenses of [JMW].”
“… it seems to me to be tolerably clear that the party to the agreement is [JMW] and not Mr Bak.
…
The starting, and perhaps end point, is that the “Owner” is clearly named in the contract as [JMW]. There is no suggestion that in the context of a home building contract that the contract was required to be with the owner of the property on which the building work was being conducted. There is nothing in the terms of the contract to this effect. In any event, this would perhaps not assist Mr Bak as he is only a 1% owner of the Killara Property. I thus reject the contention put by Mr Bak’s counsel that the contract had to be — as a matter of law I assume — the actual registered proprietor of the property on which the building work is being carried out. No probative reason was advanced as to why this was so.
The references to Mr Bak in the contract, including his signatures where they appear, would not, in my view, cause a reasonable person in the position of the parties to conclude that it was Mr Bak who was intended to be a party and not [JMW].
Mr Bak is named as the contact person for [JMW]. He has signed on page (i) next to owner where a signature is required on behalf of the owner. Obviously enough, this requires an act by a person and in the case of an owner being a corporation — as in the case here given [JMW] is named as the owner — Mr Bak’s signature is at least equally consistent with him executing the contract on behalf of the owner as a director of [JMW]. The same may be said of his signature on page (iii). Most important, in my view, are the signature and the handwritten words on page (v). Mr Bak has signed, written his name and written “Director” next to “Capacity”. The note immediately above this reads:
‘Where the Owner is a company….the capacity of the person signing the contract, eg director, must be inserted.’
If, as Mr Bak contends, he was the Owner and contracting party, there was no need at all for this section to be completed by Mr Bak. The fact that it was completed, and the way it was completed, is consistent, and only consistent, in my view, with [JMW] being the intended contracting party. I do not accept Mr Bak’s evidence that he was only indicating his title in completing this section, in a way (so the submission advanced by his counsel went) similar to what he did when making his affidavits in these proceedings. This makes no sense. If Mr Bak was intending to sign in his personal capacity there is no reason for him to have indicated some capacity which was completely unrelated to the capacity in which he was signing the contract. On the plain terms of the document it was only necessary for the capacity to be completed where the owner was a corporation.
A reasonable person in the position of the parties would also take these matters into account in considering what to make of Mr Bak’s signature on the preceding pages of the contract next to “Owner”. None of the earlier signatures require the person signing to indicate the capacity in which the person is signing. The only place this is called for is on page (v). Having regard to the named “Owner” and each of the signatures, together with Mr Bak being named as the contact person for the “Owner”, a reasonable person in the position of the parties would conclude that it was intended that [JMW] was to be the party and Mr Bak was executing the contract on [JMW’s] behalf as its director.”
“If regard is also had to the subsequent conduct, my conclusion is the same. The principal subsequent conduct relied on by Mr Bak was the certificate of insurance and the subsequent invoices and progress claims — all of which referred to Mr Bak as the homeowner. All of this is consistent, in my view, with Mr Bak being the contact person for [JMW] named in the agreement as such. He was also the person that Mr Choi was dealing with. None of this would lead a reasonable person, in the position of the parties, to conclude, notwithstanding the clear terms of the contract, that Mr Bak was intended to be the contracting party and not [JMW].
For completeness, I also do not regard any of the subsequent conduct as an admission. Again, as I understood the arguments, the principal contention in this regard was that the failure of SDC to subsequently refer to [JMW] but rather refer to Mr Bak personally, was an admission against SDC. I am not satisfied that any of this conduct amounts to an admission. Again, it is entirely consistent with Mr Bak being the contact person for [JMW] named in the contract. I am not satisfied that SDC was aware prior to the time that payment stopped and legal advice was sought, that [JMW] was not the owner of the Killara Property.”
Mr Bak’s first ground of appeal seeks to reverse these findings, contending that the primary judge should have found that Mr Bak personally rather than JMW was party to the Contract. A third and associated ground of appeal was that the Company could not be party to a contract which described it as the owner of the Killara Property where it derived no benefit from the Contract. Mr Bak’s fourth, fifth and sixth grounds of appeal point to surrounding evidence and the fact that the Contract was for the benefit of Ms Kim and Mr Bak and contend that SDC knew that JMW did not own the Killara Property. It will be convenient to deal with these grounds of appeal together, as the parties did on appeal.
Turning now to the parties’ submissions, both Mr Young (who appears for Mr Bak) and Mr Golledge (with whom Mr Baird appears for JMW and the Liquidator) rightly draw attention to the terms of the Contract and to orthodox principles of construction and as to the identification of contractual parties, and neither contended that the primary judge had misunderstood those principles. As the primary judge had recognised, the named parties as to the contract, JMW and SDC, are respectively defined as the “Owner” and “Builder”, and those terms are not otherwise defined in the Contract. As a matter of ordinary usage and common sense, I accept that the owner of the relevant property would ordinarily and sensibly be named as the “Owner” in the Contract and that would have been, here, Ms Kim as to a 99/100 share and Mr Bak as to a 1/100 share. Mr Young also points to clause 16 of the Contract which requires the Builder to provide to the Owner, prior to receipt of money, a copy of the Home Building Certificate of Insurance for the works. As I will note below, a complying certificate of insurance was here taken out in the name of Mr Bak, and there is no suggestion that it was not provided to JMW through Mr Bak. I recognise that the Contract also provided, in clause 2 of the Conditions, for the Owner to provide, prior to the commencement of the works, documentary evidence of ownership of the property on which the works were to be executed. That clause plainly indicated an expectation, although not an express requirement, that the named “Owner” in the Contract would be the owner of the relevant property, and did not provide for any consequence if that was not the case. I recognise that JMW could not have complied with that requirement, had SDC sought that proof of ownership, but SDC did not do so, consistent with its reliance, as shown by the evidence at the trial, on the architects with which it regularly dealt as to the identification of the client with which it contracted.
Mr Young was not able to point to any other provision of the Contract which required the person named as “Owner” in the Contract be the owner of the property. That was perhaps not surprising, since there would have been no obvious reason for those drafting a standard form contract to do so in a manner that would cause it to fail if, for example, it was executed by only one owner of the property (for example, by Mr Bak rather than by both Ms Kim and Mr Bak) or by a proprietary company associated with the owner or owners of the property (for example, JMW). Mr Young submitted that the primary judge was in error in holding that there was no warranty that the party named as “Owner” in the Contract was the owner of the property on which the building work was to be conducted and in holding that there was no requirement that the Contract was made with the owner of the property.
“It was plainly correct that [JMW] had no interest in the Killara [P]roperty and did not derive any benefit from the building work. However this goes to the unlikelihood that [Mr Bak] and even more so, [Ms Kim], would have expected that [JMW] would be treated as the homeowner when plainly that was not the case.”
I do not accept that submission. First, JMW was not treated by the primary judge as the home owner where, as Mr Young points out, it plainly was not the home owner. Rather, it was treated as a party to the Contract, where it was named as party to the Contract which was signed by Mr Bak on its behalf, expressly as its director. In that situation, JMW’s lack of interest in the Killara Property is less significant for the identity of the parties to the Contract and more significant to establish the breaches of directors’ duties that JMW and the Liquidator had sought to establish.
In oral submissions, Mr Young somewhat departed from the proposition that the owner of the property must be the “owner” identified in the relevant contract, by accepting that a third party could execute the contract as “owner”, with authorisation by the actual property owner (T31). Mr Young further accepted (T34–35) that, for example, there would be no difficulty if a building contract was completed by a proprietary company controlled by the owners, where there was a tripartite discussion between the builder, the owners and the proprietary company and all were content with that position. These propositions undermine Mr Bak’s primary position, that only the owner of the property could be the “Owner” specified in the relevant contract. It also undermined his position in this case, where Mr Bak’s execution of the Contract in the name of and expressly as director of JMW would, so far as he was able to do so, authorise JMW to enter the Contract for the benefit of Mr Bak and Ms Kim.
For completeness, Mr Young also contended that SDC knew that Mr Bak rather than JMW was party to the Contract. That has not been established. I recognise that it might seem odd that SDC did not focus on the identity of the contracting party, and took no steps to inquire whether JMW or Ms Kim and Mr Bak was the owner of the Killara Property. However, that matter is explained by Mr Coddington’s evidence at first instance that SDC relied on architects with whom it had long term dealings, including Mr Choi and, in effect, left it to the architect to identify the contracting party and was content to enter the contract in the form provided by such an architect.
Mr Golledge responded to these matters by pointing to established principles of construction, the terms of the Contract and the circumstances in which it was executed. Mr Young also submitted, in reply, that SDC was aware at the time of the insurance contract that the owner of the property was Mr Bak. That was not the case, because (even putting aside the fact that Ms Kim held a 99/100 share and Mr Bak held only a 1/100 share in the property) the evidence at the trial showed that SDC had paid no significant attention to the identity of the owner shown on the insurance contract, where it relied on the architects with whom it regularly dealt to identify the proper party to the building and insurance contracts. In any event, nothing follows from this proposition, where it has not been established that there was any statutory or other requirement that the Contract be executed by the home owner rather than, for example, a proprietary company associated with that owner, and SDC’s knowledge of the true position, had it been established, would not have assisted Mr Bak.
“A contract of insurance complying with sections 92 and 96 of the [HBA] … has been issued by Insurance and Care NSW (ICare) for the insurer.”
The home owner was there recorded as Mr Bak and the work was correctly described as carried out by SDC, complying with the first requirement noted above. I did not understand Mr Young to contend, at first instance or on appeal, that the second of the requirements in s 92(1) of the HBA was not satisfied, since JMW as party to the Contract was provided with that certificate when it was provided to one of its directors, Mr Bak.
“Subject to the [HBA], the Home Building Regulation 2014 and the conditions of the insurance contract, cover will be provided to a beneficiary described in the contract and successors in title to the beneficiary. The Certificate is to be read in conjunction with the policy wording current as at the policy date and available at the ICare website. …”
I recognise that that statement appears to have assumed an identity between the owner of the property shown in the contract and the beneficiary of the insurance contract, which was not the case where JMW was named as contracting party and Mr Bak was named as party to the insurance. However, as Mr Young fairly accepted, that matter did not invalidate the insurance contract. It also did not contravene any provision of the HBA or outweigh the other objective indicators that the contracting party was JMW rather than Mr Bak.
Section 92C of the HBA extends the benefit of the contract of insurance to any non-contracting owner and was available here in Ms Kim’s favour, where Mr Bak was a party to the contract of insurance. Mr Young submitted that this section does not contemplate the making of a home building contract with a non-owner. I accept that this section assumes that the owner of the relevant property will enter the building contract, but it does not require that occur. It also does not invalidate a contract where that does not occur because, for example, a proprietary company associated with the owner is named as party; or provide any basis for construing it other than in accordance with its terms.
Mr Young also contended that, under s 94 of the HBA, SDC was not entitled to damages or to enforce any remedy against JMW. That section provides that, if a contract of insurance required by s 92 of the HBA is not in force, in the name of the person who contracted to do the work, in relation to any residential building work done under a contract, the contractor who did the work is not entitled to damages, or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, in relation to that work, and is not entitled to recover money in respect of that work under any other right of action (including a quantum meruit). That section does not apply here where such a contract was in force and the requirements of s 92 were satisfied. In any event, SDC had a judgment debt against JMW which was valid until set aside, and, as I noted above, Mr Bak did not press an amendment of his grounds of appeal which sought to raise a challenge to the debt owed to SDC.
Third, Mr Young emphasised that the certificate of insurance in respect of the relevant building work was issued in the name of Mr Bak and submitted that that cannot be regarded as subsequent conduct where the Contract required that insurance be obtained in the name of the party that was to undertake the building work. I am inclined to think that this matter can be taken as contemporaneous conduct with the Contract. However, the fact that the contract of insurance was executed by Mr Bak was not inconsistent with the execution of the Contract by JMW, not least because that would be a sensible course, even if the building contract had been deliberately executed in the name of a proprietary company associated with Mr Bak and Ms Kim, where that approach complied with the insurance requirements of the .
“Insofar as reference is also made to s 127 of the [Act], there was no real dispute that Mr Bak was the managing director of [JMW], running every aspect of its operations. This was a matter relied on by both Mr Bak and Ms Kim in contending either that Ms Kim had no liability or should be relieved from any which she otherwise had.”
The primary judge here appears to have adopted the parties’ use of the term “managing director” in a somewhat colloquial sense, as continued in this appeal, since it is not apparent that Mr Bak was appointed to that position in accordance with JMW’s constitution, as distinct from being permitted to act in such a role.
“[JMW] had not signed the contract in accordance with section 127 of the [Act]. That would have required the signature of the other director, Ms Kim.
On SDC’s own evidence it had no dealings with [JMW] at all [I interpolate, presumably putting side the Contract] and therefore there can be no question of ostensible or actual authority.
Whether in the ordinary course of the company [JMW] acted as the managing director or even as the alter-ego is irrelevant in the circumstances of this case. SDC did not deal with either the company or with Mr Bak.”
I do not accept the last submission where SDC plainly dealt with JMW and Mr Bak in receiving a Contract which was, on its face, executed in the name of JMW and signed by Mr Bak as its director.
Mr Golledge contended, in response, that Mr Bak had actual authority to execute the Contract, derived from the manner in which he was permitted by JMW’s shareholders (himself and Ms Kim) and directors to conduct its affairs. He submitted that a “managing director” would have authority conferred by other directors to bind a company to contracts, but that proposition does not go far where Mr Bak, so far as the evidence goes, was not appointed as JMW’s managing director in accordance with the its constitution. Mr Golledge also rightly pointed out that, by their conduct, shareholders and directors may confer actual authority on a director to bind a company in dealings with third parties. It is well established that implied actual authority can be established if directors stand by while a single director enters transactions outside authority, so as to acquiesce in that conduct: Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 360–361; (1991) 6 ACSR 464 (“Occidental”). It seems to me that there was no error in the primary judge’s finding that Mr Bak had actual authority to enter into the Contract on that basis, although the entry into that Contract was a breach of duty on his and Ms Kim’s part.
Mr Young submitted in reply, that Mr Bak should not be treated as having authority to enter into the Contract for JMW because the home building work at the Killara Property had nothing to do with JMW’s business. That, of course, is the gravamen of the breach of duty alleged against Mr Bak; but it does not exclude his authority to execute the Contract, where implied actual authority can extend to a contract executed in breach of duty, as the decision in Occidental demonstrates. This ground of appeal fails, because Mr Bak had actual authority to enter into the Contract.
Mr Bak’s seventh ground of appeal was not pressed. Mr Bak’s eighth, ninth and tenth grounds of appeal contest the primary judge’s finding that the Company was insolvent on 5 May 2021, which is relevant to (but not necessary to) his Honour’s findings in respect of the Payments and Retention Receipt Claims. These grounds of appeal include challenges to his Honour’s findings as to a debt owed by JMW to the Australian Taxation Office and a debt owed by JMW to SDC. Even if they had succeeded, these three grounds of appeal would not have provided a basis for setting aside the primary judge’s orders in respect of the Payments and Retention Receipt Claims, because insolvency is not a necessary requirement of a claim under s 588FDA of the Act, and his Honour’s orders in respect of the Payments and Retention Receipt Claims are sufficiently supported by that claim. However, I will address these grounds of appeal for completeness.
In finding that JMW was insolvent at 5 May 2021, the primary judge referred (Judgment [229]) to the Liquidator’s solvency report tendered at first instance, which concluded that JMW was insolvent as at 5 May 2021. That report referred, in orthodox terms, to the test for solvency in s 95A of the Act and to relevant case law, and observed that:
“Following payments made by [JMW] on 5 May 2021 totalling $984,096, it had no other assets to be realised in the short term or access to alternative sources of finance with which to settle its debts that were due for payment.
[JMW] had judgment entered against it on 23 December for an amount of $519,473.41 (being the judgment in favour of SDC):
[JMW] since 2018 had an increased liability to the [Australian Tax Office] in respect of both GST and PAYG and income tax …”
Mr Taylor also there conducted a review of JMW’s working capital as at December 2020 and May 2021 in support of that analysis. His Honour noted (Judgment [229]) that there was no serious challenge to that evidence and accepted it. His Honour also noted (Judgment [230]) that Mr Bak had admitted in his liquidator’s public examination that once the money was paid away to the Korean and Japanese entities, JMW was left with no money to pay its creditors. Those matters, even without more, seem to me sufficient to support the primary judge’s finding that JMW was insolvent. In reply, Mr Young submitted that the report as to solvency was given by the Liquidator, but there is nothing either unusual or improper in a liquidator leading evidence as to solvency in proceedings of this character.
As I noted above, these grounds of appeal include a challenge to the primary judge’s finding as to a debt owed by JMW to the Australian Taxation Office. Mr Taylor’s evidence, which was accepted by the primary judge, was that in addition to its liability to SDC, JMW had a long due tax debt in the amount of $95,418.07 and that its only asset, after the 5 May 2021 payments and the retention by Mr Bak, was an amount of $330.01 in its bank account, which was plainly insufficient to allow it to meet that debt. As Mr Golledge pointed out in submissions, both Ms Kim and Mr Bak had also acknowledged the then tax debt of $95,000 owed by JMW to the Australian Taxation Office in their respective report on Company Activities and Property. I did not understand Mr Young to have repeated the submission, put before the primary judge, that JMW could rely on a possible future land tax refund to pay the tax debt that was then presently due. That submission is untenable, where a possible and contingent future receipt does not establish an ability to pay a presently due liability. There was no error in the primary judge’s treatment of this issue.
As I noted above, these grounds of appeal also include a challenge to the primary judge’s finding as to a debt owed by JMW to SDC. In reply, Mr Young submitted that Mr Taylor had not expressly concluded that, but for the SDC debt, JMW was insolvent as at 5 May 2021. In my view, nothing turns on that proposition, where the debt owed by JMW to SDC was a judgment debt, which was due and payable and which JMW could not pay after the 5 May 2021 payments; where the unpaid debts to the Australian Taxation Office were admitted by both Mr Bak and Ms Kim, as I noted above, and they also could not be paid after the 5 May 2021 payments; and where Mr Bak had, in terms, admitted JMW’s inability to pay its debts after the 5 May 2021 payments. Mr Bak also did not press his appeal which sought to raise a challenge to the debt owed by JMW to SDC. Where the primary judge found that JMW was insolvent at the time of the challenged 5 May 2021 payments and retention, including by reason of its debt owed to the Australian Taxation Office, it was not necessary for his Honour to address whether he would have reached a different conclusion as to solvency if no liability to SDC existed. This ground of appeal fails for these reasons.
Mr Bak’s eleventh ground of appeal is directed to a declaration made by the primary judge recognising an equitable charge over the Killara Property in favour of JMW.
The primary judge held (Judgment [193]) that it was appropriate to charge the Killara Property with payment of the amount due to JMW by Mr Bak and Ms Kim in relation to the Building Works Claims and returned to that question in his Orders Judgment. The primary judge had reviewed relevant case law, including my decision in Angus Carnegie Gordon (in his capacity as liquidator of Lyon Form Pty Ltd (in liq)) v Leon Plant Hire Pty Ltd (in liq) (2015) 16 ASTLR 185; [2015] NSWSC 397 (“Lyon Form”), where I had observed (at [66]) that:
“The Plaintiffs sought, but did not advance substantive submissions as to, an alternative remedy of an equitable lien or equitable charge. Courts have imposed an equitable lien or charge as a proprietary alternative to the constructive trust in circumstances where, for example, a trustee has mixed trust funds with its own funds or has subsequently acquired an asset: Re Hallett’s Estate; Knatchbull v Hallett (1879) 13 Ch D 696; see also Hewett v Court (1983) 149 CLR 639 at 668. It seems to me that the imposition of relief in that nature is justified by the matters to which I have referred above and will sufficiently protect the Plaintiffs’ interests, and I will hear the parties as to the form of order that should be made to give effect to that relief. Although relief was sought by way of an order for judicial sale, no submissions were put in that regard by Counsel and no basis has been established for making such an order at this point.”
The primary judge also referred to the observations as to the nature of an equitable lien or charge in Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536 at 554 and in Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 at [13]–[17].
His Honour then observed (Judgment [191]–[193]) that:
“It is clear that one of the cases where the Court will impose an equitable charge or lien over the assets held by a wrongdoer is to the extent that the funds of the plaintiff were used to acquire, improve or maintain the wrongdoer’s assets: see for example Westpac Banking Corporation v Sentox Pty Ltd (No 2) [2024] NSWSC 783 referring to In re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 at 717 per Jessel MR and Lyon Form at [66] per Black J.
The present case is, in my view, in substance such a case where [JMW] funds have been used to improve Mr Bak and Ms Kim’s asset being the Killara Property. In permitting or causing this to occur, Mr Bak and Ms Kim breached their duties — both statutory and at general law.
It is appropriate in the circumstances to charge the Killara Property with repayment to [JMW] of the moneys due to [JMW] by Mr Bak and Ms Kim in relation to the Building Work[s] Claims.” [emphasis added]
“… relied upon cases where funds of another were used to acquire, improve or maintain the wrongdoer’s assets. There was no other basis in the reasons for the imposition of charge.
In this case his Honour rejected that any company funds had been used to pay SDC. Funds used to pay SDC came from [Mr Bak] and [Ms Kim] personally. In those circumstances there was no proper basis to charge the Killara property for a repayment to [JMW].”
Mr Young was correct in observing that the primary judge had not accepted JMW’s and the Liquidator’s claim that JMW’s funds were used to pay for works done at the Killara Property. The Building Works Claims were different, namely that Mr Bak, with Ms Kim’s acquiescence, had caused JMW to incur a liability for work done at the Killara Property in the amount not paid to SDC, and Mr Bak and Ms Kim had taken the benefit of that work at that property.
Mr Golledge responded that the grant of the equitable charge, in a case of breach of fiduciary duty, was an orthodox application of principle to the facts as found by the primary judge, where the power to grant a charge is not limited to pre-determined categories. It is by no means clear that there are previous examples of the grant of a charge in a similar situation, but it seems to me, for the reasons noted below, that that relief was available in the relevant circumstances. Mr Golledge also submitted that the primary judge’s reference (Judgment [191]–[192]) to “[JMW’s] funds” referred not only to monies of JMW but also to liabilities incurred by it. That reading is not the most obvious reading of the primary judge’s observations, although I recognise that his Honour had there referred to the position “in substance”.
It seems to me that the position here is not the same as that considered in Lyon Form, but his Honour had recognised that (admittedly in a shorthand way) by referring to the position that existed “in substance”. It seems to me that his Honour was correct to treat the position as, in substance, analogous, where SDC was invoicing in arrears for work done; that work had here been done, likely increasing the value of the Killara Property; and JMW had assumed liability under the Contract to pay for that work. In that case, Mr Bak and Ms Kim have in fact obtained the benefit of the work done, for which JMW had incurred that liability, and that is sufficient to support the lien that his Honour ordered. That order does not disadvantage other unsecured creditors of Mr Bak or Ms Kim, where the likely increase in the value of the Killara Property will reflect the additional work done for which JMW incurred that liability.
Mr Bak’s twelfth ground of appeal relates to an order for compound interest made by the primary judge in respect of the Payments and Retention Receipt Claims.
In his Orders Judgment, the primary judge reviewed the case law as to when compound interest should be ordered. His Honour was not satisfied that it had been established that an award of compound interest was necessary or appropriate in the circumstances in relation to the Building Works Claims and no challenge is made to that conclusion. However, his Honour held that compound interest was appropriate in relation to the Payments and Retention Receipt Claims. His Honour observed (at [29]) that:
“The position in relation to the Payment and Retention Receipt Claims is different. The funds of the first plaintiff have been paid away to third parties, two of which are companies controlled by Mr Bak. It is appropriate for compound interest to be calculated at annual rests as sought by the plaintiffs.”
Mr Golledge submitted that the award of compound interest is an orthodox application of principle, by reference to the cases to which the primary judge had referred, and no issue was directly taken as to the application of those cases on appeal. For completeness, I also accept Mr Golledge’s submission that there was no relevant distinction between the position in respect of the payment to the two Korean entities associated with Mr Bak and the payment to the Japanese company, where the latter discharged a debt owed by one of the Korean entities to the Japanese company rather than a debt owed by JMW to that company. The making of that payment was no less a breach of fiduciary duty by Mr Bak than the making of the payments to the Korean companies or the retention of the funds for himself. In reply, Mr Young relied on the primary judge’s finding neither fraud nor misconduct had been demonstrated on the part of Ms Kim or Mr Bak, which I address below in dealing with how the primary judge’s findings as to causation were correct.
There is considerable force in Leeming JA’s observation (at paragraphs 20–21 above) that the claims brought against Mr Bak and Ms Kim were of a different character. This reflected the fact that Mr Bak’s breaches of duty, involving positive breaches of the no conflict or no profit rules, was of a different character to Ms Kim’s breach of duty by her failure to perform her duties, although I see both as causative of the same loss. However, the parties did not seek to draw that distinction before the primary judge. Where that matter was not raised below, it does not displace the basis of his Honour’s award of compound interest in respect of the Payments and Retention Receipt Claims.
For completeness, his Honour also held (Orders Judgment [36]) that compound interest should be calculated at court rates. It appears that that approach was common ground at first instance and there is no reason to revisit it on appeal.
I see no error in the primary judge’s findings as to the award of compound interest in respect of the Payments and Retention Receipt Claims.
By her first ground of appeal, Ms Kim contends that the primary judge erred in finding (Judgment [258], [260]) that Ms Kim committed relevant breaches of directors’ duties in relation to actions taken by Mr Bak without her knowledge. Mr Maroya, who appears for Ms Kim, indicated in oral submissions on the appeal that this first ground of appeal has no separate work to do and picked up other matters which I address below.
I first note aspects of the primary judge’s findings in respect of Ms Kim, which are relevant to those other grounds of appeal. His Honour had held, in respect of Ms Kim (Judgment [103]–[104]), that:
“Ms Kim’s knowledge and state of mind largely went to her claim to be relieved from liability. As is apparent below, I am not satisfied that Ms Kim should be relieved from liability for reasons largely unrelated to her knowledge and state of mind. It is thus perhaps unnecessary to make any detailed findings in relation to her knowledge and state of mind.
In any event, I record the following findings:
(a) Ms Kim was informed by Mr Bak sometime after she had in fact been appointed as a director of [JMW] that she had in fact been appointed;
(b) she was told by Mr Bak that he had made her a director “just in case”. She had no understanding at any time of what it meant to be a director and what responsibilities that entailed;
(c) at no stage did Ms Kim have any real involvement in the affairs of [JMW]. At no stage did she ask Mr Bak about [JMW]. As she candidly admitted on a number of occasions in cross-examination, her focus was on raising her family;
(d) apart from making cash payments to SDC as and when requested by Mr Bak, Ms Kim had no knowledge of or involvement in the renovation of the Killara Property including the contractual arrangements in relation to this work;
(e) Ms Kim became aware of the fact that Mr Bak had appointed her a director of Skin & Co AU at about the time this occurred. She was then aware that Skin & Co AU was to enter a lease with [JMW] in relation to the Roseville Property because this is what the purchaser of the Roseville Property requested. She signed the lease;
(f) at or about the time that it ceased trading, Ms Kim was told by Mr Bak that the [JMW] business in Australia was not doing well;
(g) Ms Kim had no knowledge of the creditors of [JMW] and what was to happen with the proceeds of sale of the Roseville Property; and
(h) at all times Ms Kim acted honestly.”
“In the case of Ms Kim, the case is, again, one of omission. At the time of the payments and retention, Ms Kim:
(a) was aware that many years earlier she had been informed by her husband that she had been made a director of [JMW] “just in case”;
(b) had never really taken any role whatsoever in relation to [JMW];
(c) from time to time she had executed documents on behalf of [JMW];
(d) was aware that Skin & Co AU had been incorporated and that she was a director of it and that it had entered into a lease with [JMW] in relation to the Roseville Property;
(e) was aware from what her husband had told her that the business in Australia was not doing well; and
(f) was aware that the Roseville Property was being sold.
Ms Kim did nothing to inquire of Mr Bak as to what was happening with the proceeds from the Roseville Property or what arrangements were in place (if any) with respect to the payment of [JMW’s] creditors.”
“Again, in my view, Ms Kim fell well short of the core irreducible requirement of a director. Much was said by counsel for Mr Bak and adopted by counsel for Ms Kim that Ms Kim had no knowledge of the contracting party in relation to the Killara Property or the payments overseas or the retention of the $50,000. I do not regard this lack of knowledge as assisting Ms Kim on the issue of breach of duty. Her lack of knowledge was in the context of never taking any role whatsoever in relation to [JMW]. Concluding that she is not acting in breach of her duties would run counter to the well-established law of the minimum expected of directors.
…
The claims against Ms Kim were based on omission, not commission. Ms Kim’s defence was, in substance, that she left the running of [JMW] to her husband and was not aware of the circumstances in which the building contract was entered into, or the payments made from the sale of the Roseville Property.
These matters — which were not seriously in dispute — do not avail Ms Kim as a defence to a claim for breach of directors duties. As set out earlier in these reasons, it is clear that a director has core irreducible obligations which she did not live up to.”
Turning now to Ms Kim’s second ground of appeal, she contends that the primary judge erred (Judgment [1258]), which I have quoted above) in implicitly finding, or alternatively failing to find, that Ms Kim’s conduct had any role in the loss suffered by JMW as a result of Mr Bak’s actions. That paragraph of the Judgment relates to the Payments and Retention Receipt Claims rather than the Building Works Claims, although the same issues arise in respect of both claims.
By way of background to this ground of appeal, JMW and the Liquidator had submitted, at first instance, that a reasonable person would have taken steps to discover and prevent the losses suffered by JMW; and that Ms Kim’s failure to take those steps enabled Mr Bak, by positive action, to expose JMW to both the wrongful entry into the Contract and the consequential liability to SDC, and the payments to the South Korean and Japanese companies and the retention of its funds by Mr Bak. Mr Golledge also submitted, in oral closing submissions at first instance, that the Court should not find that Mr Bak would, for example, have lied to Ms Kim had she sought information about the relevant matters and transactions.
The primary judge did not (Judgment [258]) expressly identify any causal link between the breach of duty that he had found on Ms Kim’s part and the loss suffered by JMW in respect of the Payments and Retention Receipt Claims, by contrast with his express finding as to causation in respect of the Building Works Claims (Judgment [178]–[179]). Mr Golledge submitted, on appeal, that a finding as to causation in respect of the Payments and Retention Receipt Claims was implicit in his Honour’s approach to Ms Kim’s claim for relief. It seems to me to be plain enough that his Honour treated Ms Kim’s failure to take any active steps to comply with her duties as a director of JMW as causative of JMW’s loss in the relevant sense, and that finding is essential to the orders made against Ms Kim. In any event, by a Notice of Contention dated 9 February 2026, JMW and the Liquidator contend that, if the primary judge had failed to make a finding that Ms Kim’s breach of her director’s duties was causative of any loss to JMW, then the Judgment should be upheld on the basis that JMW and the Liquidator had sought that finding and the evidence supported that finding; and that the primary judge ought to have found that Ms Kim’s breaches of duty, as found by his Honour, caused or were a cause of the loss suffered by JMW.
There is no contest that the applicable test for whether loss “results from” a breach of duty, for the purposes of s 1317H of the Act, is stated in Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131, where Giles JA (with whom Mason P and Beazley JA agreed) observed (at [707]–[709]) that:
“I do not think it necessary to further the debate over causation for the purposes of determining equitable compensation. I am respectfully unable to agree that analogy with equitable claims against fiduciaries influences the meaning and application of “resulted from” in s 1317H. …
For s 1317H, the analogy with equitable claims against fiduciaries is all the more difficult because some civil penalty provisions in the Act do not involve contravention by a person standing in a fiduciary capacity.
In my opinion, the words “resulted from” in s 1317H are words by which, in their natural meaning, only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation. … they should be given their ordinary meaning of requiring a causal connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries.”
“The words “resulted from” require a causal connection between the damage and the impugned conduct and do not import the more stringent test in equity for breach of fiduciary duty: Adler v Australian Securities and Investments C**ommission (2003) 46 ACSR 504; [2003] NSWCA 131 at [707]–[710]. It has been said that the common sense test of causation from March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; 99 ALR 423; 12 MVR 353 whether loss would have occurred had there been no breach of duty, is applicable to s 1317H: Hydrocool Pty Ltd v Hepburn (No 4) (2011) 279 ALR 646; 83 ACSR 652; [2011] FCA 495 at [476]. Such an assessment may involve the positing of counterfactuals: see the remarks of Beach J in Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425; 146 ACSR 328; [2020] FCA 1098 at [1778]–[1780], in the similar context of s 1317G.”
Mr Maroya submitted that causation was not established in relation to the Payments and Retention Receipt Claims, because Ms Kim did not know of Mr Bak’s actions in making the payments to the South Korean and Japanese companies or retaining the retention amount. He also submitted that, while her omissions may amount to a breach of her duty as director, they do not establish that she permitted Mr Bak’s actions in that regard. Mr Maroya here relied on the decision of the Court of Appeal in Metal Manufacturers v Lewis (1988) 13 NSWLR 315 (“Metal Manufacturers”), which was concerned with the construction of s 556 of the then Companies (New South Wales) Code and the question whether a debt was incurred without a director’s “express or implied authority or consent” within the terms of that section. Mahoney JA there observed (at 325) that a managing director may exercise his powers notwithstanding that some or all of the directors do not agree with what he does, or where some of the directors do not authorise or consent to what he does but disapprove of it. That reasoning has no direct application here, since it was not established that Mr Bak had been appointed as managing director of JMW in accordance with its constitution, and the actual authority which he exercised resulted only from Ms Kim’s continuing acquiescence, as matter of fact, in his exercise of that authority to her exclusion and would have ceased had she actively performed her role as a director. McHugh JA there observed that the director in that case had incurred a debt on behalf of the company in his capacity as managing director, and his wife had no power to prevent him from exercising his authority to contract the debt and knew nothing about it and, accordingly, had neither authorised nor consented to the incurring of the debt. The first aspect of that reasoning is also not available here, for the same reason that Mahoney JA’s reasoning is not applicable here. The second aspect of that reasoning, as to Ms Kim’s knowledge, is also not available here where Ms Kim would have known of the relevant payments had she performed her duties as a director of JMW, and her failure to perform those duties is the cause of her ignorance and of the consequences that followed from it, for the reasons noted below.
Mr Maroya also relied on the first instance decision in Standard Chartered Bank v Antico (Nos 1 & 2) (1995) 38 NSWLR 290 at 363ff (“Standard Chartered*”)*, which also concerned the question whether a debt was incurred without the defendant’s authority for the purposes of s 556 of the former Companies (Queensland) Code. Hodgson JA there noted a possible conflict in the case law between Metal Manufacturers and other decisions which had held that a wife who had little participation in or knowledge of a company’s business had not established that a debt was incurred without her authority or consent. His Honour there addressed (at 366ff) the question whether authority or consent can be implied from inactivity, and observed that:
“In the case of so-called sleeping directors, I think it is largely a question of fact in each case whether inactivity does or does not imply authority or consent. If the circumstances are that a director knows or should know that the company is incurring debts which it will not be able to pay as they fall due, and does not try to prevent this by persuasion, calling a meeting, etc, then authority or consent may well be implied, even if the debts are being incurred by a managing director, and the defendant director has not the power, according to the constitution of the company, to over-ride the managing director's decisions.” [emphasis added]
That observation does not assist Ms Kim, both because it was not shown that Mr Bak had been appointed as managing director of JMW in accordance with its constitution, so that his authority depended on her inaction, and because she would and should have known of relevant matters had she actively performed her duties as a director of JMW.
Mr Young also sought to advance Ms Kim’s appeal as to causation, submitting that:
“[Mr Bak] accepted that in his actions in relation to the [Contract], the payment claims and the retention, he acted to the exclusion of Ms Kim. His evidence was that he did not involve her in decisions and that her involvement was only for banking and signing documents when he was not in Australia.
Even if it is accepted that Ms Kim did not fulfil the requirements that would normally be expected of a director, there is no basis in the circumstances in which it can be found that a reasonably diligent director would have been able to prevent [Mr Bak] from acting as he did.”
Mr Golledge responded that Ms Kim’s failure to take steps such as speaking to Mr Bak about JMW’s affairs, about which contracts or agreements it made with third parties, or about what was to be done with the sale proceeds of the Roseville Property and how JMW’s creditors would be paid enabled Mr Bak’s conduct that gave rise to the Payments and Retention Receipt Claims. He submitted that, conversely, had Ms Kim fulfilled her duties as a director by making appropriate inquiries as to JMW’s dealings with third parties and the use of its money, she would have been on notice of the risk of loss to JMW arising from Mr Bak’s conduct and would then, consistent with her obligations, have taken steps to prevent that conduct, including preventing JMW’s money from being sent overseas when its creditors had not been paid in full. Mr Golledge also submitted, and I accept, that it was a matter for Ms Kim to plead at first instance (reflecting the legal onus) (which she did not do) or at least prove (reflecting the evidentiary onus) (which she also did not seek to do) that Mr Bak would have overridden or rejected any inquiry she had made in performing her duties as a director.
In oral submissions on appeal, Mr Golledge in turn referred (T72) to the core irreducible obligations of a director, to which the trial judge had referred, and identified those obligations as including at least an obligation to ask a “dominant” director or managing director:
“… what is this company doing? What business does it have? Who's it deal with? Who does it owe money to, and how are we going to pay back money that is owed?”
“firstly there is no reason to think that her husband [Mr Bak] would have lied to her. There was certainly no evidence led by the defendants. They led evidence that he was in control of the company's affairs, but there was no evidence on which the trial judge could have found, or your Honours could infer, in absence of a finding, that had she asked, had she made those inquiries, she would've been ignored or rebuffed. So, there's no basis to draw that conclusion ….
… we say he likely would have told her, "We've got a building contract on foot, and there are amounts owing." He did tell her the company wasn't trading very well. There's a finding about that. So, she was on notice the company wasn't trading very well. Had she asked those few questions, the relevant counterfactual is she would also have asked, "Well, how's the builder going to get paid?"
Mr Golledge then submitted (T74) that the risk that Mr Bak would act in an unconstrained way arose from Ms Kim’s failure to perform her duties as a director and did not break the chain of causation, since the proper performance of Ms Kim’s duties would have protected JMW against that risk; and that causation is established where “[Ms Kim] fails to take those steps, and Mr Bak is then left with a free hand, and the company suffers as a consequence”.
Mr Maroya submitted, in reply, that JMW’s and the Liquidator’s reference to the steps Ms Kim could have taken to perform her duties did not reflect how JMW was being managed or operated, because Mr Bak was its controlling mind. It seems to me that that proposition points to the fact of Ms Kim’s inaction but does not thereby negate causation. Mr Maroya also submitted that Mr Bak paid no attention to inquiries or involvement from Ms Kim, however neither Ms Kim nor Mr Bak led evidence to support that proposition; and he also referred to his Honour’s finding, in the Orders Judgment, that fraud or dishonesty had not been established on the part of Mr Bak.
Mr Maroya also there returned to Metal Manufacturers and Standard Chartered, which he contended indicated a “critical distinction between the instance of a director who has the power to prevent the incurring of a debt, as opposed to a director who does not” and submitted that the evidence demonstrates that Ms Kim fell into the latter category. However, there was here no difference in the powers available to Mr Bak on the one hand and Ms Kim on the other under JMW’s constitution, but for Ms Kim’s inaction. The difference was here only that Mr Bak exercised the powers that Ms Kim had acquiesced in his exercising without her involvement to cause JMW’s entry into the Contract and the payments to the Korean and Japanese companies and the retention, and Ms Kim took no steps to exercise the powers she had to dissuade him or prevent him from doing so. That is again evidence of the breach and its consequences, not a matter that displaces causation.
I am satisfied that there was no error in his Honour’s approach to causation, which (as I have noted above) implicitly treated Ms Kim’s breach of duty as causative of JMW’s loss in respect of the Payments and Retention Receipt Claims. First, at a broader level, Ms Kim’s omissions enabled Mr Bak to take the relevant actions, which he could not have unilaterally taken had she actively performed her role as a director and required that major decisions, including the entry into the Contract, the payments to the Korean and Japanese companies and the retention be authorised by board resolution or at least by an informal meeting or discussion between the directors. Second, as Mr Golledge pointed out, neither Mr Bak nor Ms Kim led evidence that any action taken by Ms Kim would have had no effect on Mr Bak. Neither said, for example, that Mr Bak had previously lied to Ms Kim about significant matters or would have lied to her about the entry into the Contract, the payments or the retention; or that he would have entered into the Contract and made the payments and retention over her objection; or that he would not have recognised the improper character of the Contract, the payments or the retention had Ms Kim raised concerns about them or their impact on JMW’s creditors.
“Insofar as it is necessary to establish fraud or misconduct [to support an order for compound interest], I am not satisfied that this has been demonstrated in the case of either Ms Kim or Mr Bak.”
That also supports the inference that Mr Bak would not have lied to Ms Kim as to the nature of the Contract, the payments to the Korean and Japanese companies or the retention, had Ms Kim inquired about them, since to do so would have been dishonest; that Mr Bak would likely not have entered the Contract or made the payments or the retention over Ms Kim’s objection, since that would also have been at least misconduct; and that Mr Bak would not have entered the Contract or made the payments or the retention had Ms Kim raised a concern about their propriety, since to do so would have been misconduct at best and dishonesty at worst. In those circumstances, the inference was properly available that Ms Kim’s not inquiring as to the Contract, the payments or the retention, or then objecting to them or at least raising concerns about them, was causative of JMW’s loss in the relevant sense.
In reaching this conclusion, I have not neglected the fact that there were occasions on which Ms Kim raised matters with Mr Bak and he took responsibility for dealing with them, including in respect of a penalty imposed on Ms Kim for non-compliance with JMW’s corporate reporting obligations. However, even where Mr Bak dealt with those matters to Ms Kim’s exclusion, that is not evidence that (contrary to his Honour’s finding) he would have entered the Contract or made the payments or the retention over Ms Kim’s objection to them or after their impropriety was pointed out to him. This ground of appeal therefore fails.
Since preparing my reasons for judgment, I have had the benefit of reading Leeming JA’s judgment where he indicates, with his usual clarity, his different view as to the question of causation. The differences in our respective views turn, in large part, on the factual inferences that should be drawn from the evidence before the primary judge, but they may have wider implications in cases of inactive directors. I should therefore explain why I do not share Leeming JA’s view. I will seek to do so briefly, although his Honour has closely analysed the facts of the case.
Leeming JA refers (in paragraphs 13–14 and 16–17 above) to Ms Kim’s and Mr Bak’s separate breaches of their duties. I would treat those breaches as connected, although distinct in character. In the ordinary case, directors of a company act collectively, whether formally or informally, although particular directors may be involved to a greater or lesser extent in particular corporate acts. It seems to me that the directors’ conduct that brought about the impugned actions in this case is properly understood as comprising conduct of both Ms Kim and Mr Bak, being the former’s inaction amounting to a failure to perform her duties and the latter’s positive actions. The link between the two is reason for caution in treating the latter as causative and the former as not causative. The position here is significantly different from one where, for example, Ms Kim was an active director, Mr Bak had actively concealed the transactions from her and Mr Bak alone caused the resulting loss. I also see less of a difference than Leeming JA does between this case and (to which Leeming JA refers in paragraphs 45–47 above), where the practice which here permitted Mr Bak to take the impugned steps without the formal or informal approval of both directors of JMW was itself the product of Ms Kim’s inaction as a director of JMW, in breach of her duty. I also bear in mind here that one important role of a company director is to guard the company, and indirectly its shareholders and creditors, from the “determined rogue” director to whom Leeming JA refers.
Ms Kim’s third ground of appeal was not pressed. Ms Kim’s fourth to seventh grounds of appeal relate to the primary judge’s not relieving her from liability under ss 1317S and 1318 of the Act. It is convenient first to review his Honour’s reasoning, then set out these several grounds of appeal and deal with the parties’ submissions about them together and then determine each of the grounds of appeal.
There is no real contest between the parties that Ms Kim was inactive as a director of JMW at all relevant times, both before and after an accident in 2013 which left her with psychological issues which, it is plain, then impaired her ability to perform the role of a director of JMW. Mr Golledge referred to Ms Kim’s and Mr Bak’s evidence as to the circumstances in which she became a director of JMW. I recognise that Mr Bak’s evidence at first instance was that, after the accident that affected Ms Kim’s health, he “tended to keep things away from her” and that “[he] did not change the directorship of [JMW] because [he] did not want to upset her and because [he] was making all the relevant decisions anyway”; and that, even when he was not in Australia, he maintained full control of JMW’s operations and management “and made all major and even minor decisions for [JMW]”. His evidence was also that Ms Kim “was effectively director in name only and did not need to get involved in [JMW’s] affairs”. Mr Bak’s evidence was that that position had existed even before Ms Kim’s accident adversely affected her psychological health. I also recognise that Ms Kim’s evidence at first instance was that she understood Mr Bak to be the “managing director” of JMW and that he “would control its property and affairs”.
The primary judge recognised the significance of Ms Kim’s accident and observed (Judgment [15]–[16]) that:
“… Ms Kim suffered a traumatic accident in 2013 which has had a significant psychological impact on her.
I formed the view that Ms Kim was doing her best to give honest evidence and assist the Court. It was clear however that the accident and sequelae have had a profound impact on her memory. Objective material provides a more reliable guide than Ms Kim’s answers in the witness box. I do not regard Ms Kim’s denials of, for example, executing documents on which her signature appears as bearing adversely on her credit but rather an example of the unfortunate impact of her accident. I am satisfied that she acted honestly at all times.”
“Ms Kim adduced expert evidence from a psychologist, Mr Anning, in support of her claim for relief under ss 1317S or 1318 of the Act. The plaintiffs responded with expert evidence from Mr McQuillen. Mr Anning and Mr McQuillen then conferred and prepared a joint report setting out their areas of agreement and disagreement. Oral evidence was then given concurrently at the hearing. The process worked very efficiently and their evidence was of considerable assistance. The experts and legal representatives are to be commended in this regard.
In the end, I did not perceive there to be much difference between Mr Anning and Mr McQuillen.
Both Mr Anning and Mr McQuillen agreed:
(a) that Ms Kim was suffering from Post Traumatic Stress Disorder and a Major Depressive Disorder in accordance with DSM-5 criteria during the period February 2019 and May 2021;
(b) that her depressive symptoms became more predominant as her course of illness progressed and that her depressive symptoms were more predominant during the period between February 2019 and May 2021;
(c) Ms Kim’s disorders would have reduced her capacity to be involved in the management of [JMW] and to discharge her duties as a director to the standard that would be expected of a competent director on a day to day basis; and
(d) her disorders would have reduced her capacity to process and retain information, to make decisions and to reason through all the possible consequences of her decisions.
Mr Anning and Mr McQuillen appeared to disagree as to the extent to which Ms Kim would have been impaired. It became clear during the course of the concurrent session that these differences were principally based on what each observed when they examined Ms Kim. This is in the context of each of Mr Anning and Mr McQuillen agreeing that the nature of Ms Kim’s conditions is that they wax and wane. Ms Kim’s relevant condition was not likely to have been stable on a day to day basis. She would have had good days and bad days in terms of her impairment. Mr Anning had observed Ms Kim on bad days, whereas Mr McQuillen seems to have observed Ms Kim on a good day in terms of her extent of impairment.
Neither Mr Anning or Mr McQuillen had any adverse comment to make on each other’s opinions based on what each observed, ie Mr Anning thought Mr McQuillen’s opinions were appropriate based on what Mr McQuillen observed and vice versa.
It is of some significance that Mr McQuillen, in his report of 29 July 2024 concluded that Ms Kim is not fit to function as the manager of a company currently and I expect she would have also not been fit to do so at the relevant time period between 2019 and 2021. Nonetheless her symptoms and severity would have varied, and she would have had awareness of her behaviours and their consequences.
Each only observed Ms Kim for an extremely brief period and did not assess her during the period between February 2019 and May 2021. Thus, it is difficult to rely on their opinions throughout the relevant period, save to conclude that there were days when Ms Kim would not have had the capacity to discharge any duties as a director of [JMW]. Conversely, there would be some days when she would likely have the capacity to understand that she was signing documents and the like.
These observations of Mr Anning and Mr McQuillen are consistent with my own, albeit extremely brief observations of Ms Kim in the witness box. Ms Kim’s evidence commenced on day two and went into day three of the hearing. During day three, Ms Kim became quite distressed and extremely agitated and at times was incoherent in some of her answers. An extended break was necessary before Ms Kim could continue. Ms Kim’s recollection seemed much poorer on day three than day two.”
“One important matter highlighted in the cases is the prejudice to the company and its creditors. Brereton J in Re Cummings Engineering Holdings Pty Ltd [2014] NSWSC 250 at [88] [(“Cummings Engineering”)], stated:
‘Even if I were satisfied that they had acted honestly, I would still not be satisfied that they ought fairly be excused from liability: for the reasons referred to above in connection with honesty, because those matters also bear on the considerations of fairness and commonsense; but more fundamentally because relieving the directors would prejudice the plaintiffs. This is not a case of a contravention which has had no detrimental impact on the company or the other shareholders; it has depleted the equity, which ought to have been available for distribution among them. That of itself is a compelling and sufficient reason for concluding that the directors ought not fairly be excused [cf Re Wave Capital Ltd, [29]].’
(see also Re ZH International Pty Ltd (in liq) (2022) 160 ACSR 473; [2022] NSWSC 2 at [250] –[253] per Rees J).”
“At a factual level, Ms Kim’s application to be relieved from liability centred on her inability to fulfil her role as a director by reason of the consequences of her accident. The principal evidence, in addition to that given by Ms Kim herself, was given by the psychologists. I have summarised my findings earlier in these reasons in relation to the psychologists and Ms Kim.”
“Whilst I am satisfied that at all times Ms Kim acted honestly, I am not satisfied that in all the circumstances Ms Kim ought fairly to be excused. It was not in dispute that excusing Ms Kim would cause prejudice to [JMW]. Excusing Ms Kim in relation to the Building Work Claims would also lead to the perverse situation of Ms Kim being released from a liability from which she has directly personally benefited in that the liability relates to substantial building work carried out at the Killara Property, which Ms Kim owns 99 of 100 shares as tenants in common with Mr Bak and in which Ms Kim and her family lives.”
Turning now to Ms Kim’s grounds of appeal as to this issue, her fourth ground of appeal is that the primary judge erred in finding that, where Ms Kim acted honestly, she should not be relieved from liability under ss 1317S and 1318 where that would cause prejudice to JMW. This is the widest of Ms Kim’s grounds of appeal as to this matter.
Mr Maroya here referred to decisions which deal with the statutory defence under s 588FGB(5) of the Act, in respect of a director’s illness, that is available in proceedings under s 588FGA of the Act. He referred to Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91 at [174]–[175] in that regard, where Hodgson JA observed that:
“Whether a director knows it or not, he or she has a duty to exercise reasonable care and diligence in the discharge of his or her duties, with the standard of reasonableness being largely an objective one. A director's non-participation in the management of the company will usually involve a breach of that duty, whether the director is aware of this or not; although if the non-participation is because of illness or for some other good reason, then there will not be a breach of duty if the illness or other good reason is such as to make the non-participation reasonable, on the same standard of reasonableness.
In my opinion, a director's non-participation in the management of a company at a particular time will be “because of illness or for some other good reason” within s 588FGB(5) of the [Act] only if the illness or other good reason is of this character, that is, such as to make the non-participation reasonable (on the appropriate standard) and thus not a breach of the director's duty to exercise reasonable care and diligence.”
Mr Maroya also rightly emphasised that several of the cases dealing with relief from liability had not involved countervailing factors such as Ms Kim’s illness, and I accept that Ms Kim’s illness was a very significant matter, which made this aspect of the case very difficult. However, that case law does not indicate that a director who is ill and unable to perform his or her duties for a long period, and who neither resigns as a director nor performs his or her duties, would have a defence under s 588FGB(5) of the Act, or that that matter would provide a strong basis for relief under ss 1317S and 1318 of the Act.
I recognise that there is an additional complexity here, where a question may arise as to whether, if Ms Kim’s health difficulties disabled her from performing her duties on a continuous rather than intermittent basis, they also disabled her from recognising that matter so as to resign as a director. In supplementary submissions made at the Court’s request, Mr Maroya submitted that no evidence was adduced at the trial to the effect that Ms Kim knew of her incapacity to perform her role as director caused by her psychological difficulties or the difficulties that those matters posed for her capacity to continue as a director. There are three difficulties with that proposition. The first difficulty is that, where Ms Kim was seeking relief from liability under ss 1317S and 1318 of the Act, she had at least the evidentiary onus as to that matter. The second difficulty is that Ms Kim did not take an active role as a director of JMW prior to the accident which gave rise to her psychological difficulties and then knew of that position. The third difficulty is that the proposition that Ms Kim did not recognise any later inability to perform her role as a director is inconsistent with the evidence led by one of the expert witnesses at first instance that Ms Kim “would have had awareness of her behaviours and their consequences” (Blue 3563L). I do not accept that, as Mr Maroya submitted, that evidence can simply be put aside as not relevant to that matter.
Mr Golledge responded that the question whether Ms Kim ought “fairly” be relieved from liability involves a range of considerations, including the impact of that relief on third parties, and not just Ms Kim’s honesty. He submitted that:
“The Court is given a broad discretionary power. [The primary judge] took into account relevant considerations and weighed them in the balance in making the decision to refuse relief. [That] decision involved the making of a choice, as between a range of available outcomes, as to what fairness required. He committed no error in doing so and, in those circumstances, the decision ought not to be disturbed.”
Mr Maroya fairly accepted that his Honour’s decision as to this matter was discretionary in character and is to be reviewed under the standard set by House v The King (1936) 55 CLR 499; [1936] HCA 40 (“House v The King”). Mr Golledge also submitted that, where the grant of relief under s 1317S and 1718 of the Act involved the exercise of a judicial discretion, then the standard in House v The King applied, and his Honour’s exercise of his discretion would only be overturned if there was an error in the reasoning process, of fact or of principle, such that the discretion could be exercised again. Mr Golledge submitted that no such error could be found (T76ff) where his Honour had had regard to the circumstances of Ms Kim’s breach of duty, the fact of Ms Kim’s accident and its impact on her, the prejudice to JMW and the impact of relieving Ms Kim of liability, in exercising the relevant discretion, and it was not to the point that a different judge might have come to a different view in exercising that discretion.
I can see no basis for finding an error in his Honour’s exercise of the judicial discretion whether to relieve Ms Kim from liability under ss 1317S and 1318 of the Act, under the House v The King standard, which applies where the question before the primary judge admits of more than one answer, and requires the Court to consider whether the primary judge made an error of legal principle, made a material error of fact, took into account some irrelevant consideration, failed to take into account some material consideration, or arrived at a result so unreasonable or unjust as to suggest that one of the foregoing categories of error had occurred, even though that error does not appear on the face of his or her reasoning: Fred Caterson Champions Inc t/as Fred Caterson Champions v Hills Shire Council [2026] NSWCA 68 at [18]. Here, the primary judge recognised the applicable principles by reference to relevant case law. His Honour had also recognised, immediately before addressing the issues under ss 1317S and 1318 of the Act, the relevance of those health issues and referred to his earlier, and detailed, review of those issues and the evidence in respect of them. His Honour plainly gave substantial weight to those issues, and I do likewise. However, it seems to me that his Honour was not in error in the relevant sense in also giving significant weight to the adverse impact on JMW (and, by extension, its creditors) of the grant of relief to Ms Kim, which was a significant matter in the circumstances. I am not persuaded that his Honour failed to have regard to relevant matters or otherwise wrongly exercised his discretion, although (as his Honour had plainly recognised) this was a very difficult case indeed as to the exercise of that discretion.
Ms Kim’s fifth ground of appeal was that his Honour took into account irrelevant considerations in reaching the finding that I have quoted above as to the perverse effect of relieving Ms Kim from liability. Mr Maroya here submitted that the primary judge did not explain why he considered that it would be “perverse” to release Ms Kim from liability, where she was the largest personal beneficiary from the building work carried out at the Killara Property, for which JMW had incurred a liability that had not been discharged. I give little weight to that criticism, where it seems to me that there was an obvious inconsistency, which required no further explanation, between Ms Kim obtaining the benefit of her breach of duty in an increased value of the Killara Property and seeking that she be relieved of liability for that breach.
“[Ms] Kim’s capacity to discharge her duties as a director was reduced by her mental health could not have had sufficient capacity to maintain the role of director day-to-day to be effective in the role.
That [Ms] Kim’s symptoms would have waxed and waned consistent with the disorders however they are unable to be definitive about the precise level of impairment and did not assess her during the period between February 2019 and May 2021.”
The reference to a “hypothesis” in the preceding section of the joint report presumably reflected the experts’ recognition that their observations as to Ms Kim’s condition at a time prior to their examinations were matters of inference. I recognise that Mr Maroya also pointed to a comment by one expert witness that Ms Kim’s ability to “individuate herself from her husband’s direction would have been impaired, even on a good day”. However, that evidence, taken at its highest, was not sufficient to show that she would not have recognised either an inability to “individuate” herself from Mr Bak or her failure to perform any active role as a director of JMW.
Ms Kim’s seventh ground of appeal is that his Honour erred by failing to have regard to his findings (Judgment [15]–[16]) which I have also quoted above. It seems to me that this ground of appeal has no substance. As I have noted above, his Honour plainly had regard to Ms Kim’s accident and her health issues in reaching his conclusion as to relief from liability under ss 1317S and 1318 of the Act. His Honour expressly approached the question of relief from liability on the basis that Ms Kim had acted honestly at all times. The fact that, having had regard to those matters, his Honour did not exercise the judicial discretion to relieve Ms Kim from liability did not equate to a failure to have regard to them, particularly where other matters tended against relief from liability.
Ms Kim’s eighth to tenth grounds of appeal relate to the Contract, and she largely adopts Mr Bak’s submissions as to these grounds. Ms Kim’s eighth ground of appeal is that the primary judge failed to have regard to her “ignorance and total lack of involvement” in the Contract, as described by his Honour (Judgment [132]–[145]), in determining whether JMW was party to the Contract; and, if it was, in determining whether there was any basis on which Ms Kim could be liable for breach of duties in respect of Mr Bak’s entry into the Contract.
This ground of appeal seems to me to be unsustainable. There is no reason to think that the primary judge did not have regard to the findings that he had himself made, and on which Ms Kim relies, in this respect. His Honour proceeded on the basis that Mr Bak had entered into the Contract, consistent with the actual authority he had to do so which had arisen from Ms Kim’s failure to perform her duties as a director of JMW, and that did not undermine the finding that JMW was party to the Contract. His Honour rightly treated the case against Ms Kim as one of omission, and it is plain that a director’s failure to perform his or her duties can give rise to liability where it allows the opportunity for another director to act improperly. There was no error in his Honour approaching the case on that basis.
Ms Kim’s ninth ground of appeal is that the primary judge erred by failing to have regard to the incorrect description of JMW as the “Owner” of the Killara Property in the Contract; the suggestion that neither Mr Bak nor SDC informed Ms Kim of the Contract; and that the Contract was outside JMW’s powers and it could not be concluded that a reasonable director acting honestly would or could have been aware of the Contract. His Honour had regard to the first matter and properly took it into account as relevant to whether JMW was party to the Contract. It is also plain that Ms Kim knew of the building works and was involved in making payments for them. Finally, it is plain that his Honour had regard to the third matter, where the lack of proper purpose for JMW incurring liability under the Contract was at the centre of JMW’s case. There was no basis for his Honour to conclude that a reasonable director could not have become aware of the Contract, by continuing involvement in JMW’s affairs, where, as I noted above, neither Mr Bak nor Ms Kim suggested that Mr Bak would not have disclosed the Contract to Ms Kim had she made any inquiry as to JMW’s ongoing affairs.
Ms Kim’s tenth ground of appeal is that his Honour failed to have regard to evidence that receipts for payments made by Ms Kim to SDC were issued in the name of the “Bak Family” and not JMW. His Honour noted those receipts (Judgment [68]), although he did not specifically refer to the name in which they were issued. This was one further element of subsequent conduct, to which his Honour had regard, but could not have affected the result given the other matters that I have addressed above in dealing with Mr Bak’s appeal.
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Headnote - replaced "JM World Pty Ltd" with "JM World AU Pty Ltd"
[1938] HCA 34
[2026] NSWCA 68
[1936] HCA 40
[2026] NSWSC 756
(2011) 196 FCR 430
(2016) 336 ALR 209
(2019) 100 NSWLR 367
(1938) 60 CLR 336
(2023) 111 NSWLR 25
(2003) 57 NSWLR 113
(2022) 405 ALR 70
(1936) 55 CLR 499
(1986) 4 NSWLR 722
(2020) 271 CLR 192
(1988) 13 NSWLR 315
(2001) 79 SASR 109
(1995) 38 NSWLR 290
(1987) 16 FCR 536
(2014) 252 CLR 307
(2003) 212 CLR 484
(1991) 171 CLR 506
(1983) 149 CLR 639
(2011) 279 ALR 646
(2020) 382 ALR 425
Both appeals dismissed with costs. By majority, the Court upheld the primary judge’s findings and orders, including the equitable charge and compound interest award. Leeming JA would have allowed Ms Kim’s appeal in part and set aside the charge, but that was not the Court’s disposition.
The premise of the adjudicator’s certificate and the District Court judgment which had in turn supported the appointment of a liquidator to JMW was that JMW was party to the Contract with SDC, despite the land being owned by Mr Bak and Mrs Kim.
JMW and its liquidator sued Mrs Kim and Mr Bak. They did not join JM World Korea, Skin & Co Korea or Aster Biyou to which the large majority of the proceeds of sale of Roseville had been paid. In addition to contending that entry into the Contract was a breach of duty (a point to which I shall return), the plaintiffs said that JMW funds had been misappropriated in three distinct ways.
The first was that JMW funds had been used to pay SDC to improve land owned by Mr Bak and Mrs Kim at a time when the directors of JMW were obliged to have regard to the interests of creditors as well as the company. That claim failed and there is no appeal from its rejection.
The second was that Mr Bak breached his fiduciary and statutory obligations as a director of JMW by causing the proceeds of sale of JMW’s Roseville property to be transferred to the Japanese and Korean companies. The primary judge upheld that claim. Although the notice of appeal extended to aspects of that finding, it was far from the forefront of the appeal.
The third was that Mrs Kim breached her statutory obligations by failing to take steps to prevent her husband from transferring the proceeds of sale of JMW’s Roseville property to the Japanese and Korean companies. The primary judge upheld that claim, and her challenge to it was central to Mrs Kim’s appeal.
No claim was made against the Japanese and Korean companies, notwithstanding that at least in respect of the Korean companies of which Mr Bak was a director, there was, on its face, a straightforward claim for knowing receipt of property transferred in breach of fiduciary duty by Mr Bak. Nor were preference claims made against those companies, although insofar as they were creditors of JMW (there was an issue about this) the payments had obvious preferential effect. The foregoing is not to be understood as a criticism of the decisions made by the liquidator, who was entitled to prioritise a claim against an Australian resident who owned 99% of land in her own name rather than a claim against foreign companies.
It is worth observing at the outset that the second and third ways in which claims were advanced against Mr Bak and Mrs Kim were distinct but interrelated. In the present case, it was said that Mr Bak’s active transfer of the funds offshore out of JMW’s control caused loss, and further that the same loss was caused by Mrs Kim’s failure to inform herself about the affairs of JMW and to prevent Mr Bak from making the payments. It was not alleged that Mr Bak and Mrs Kim jointly engaged in conduct which caused loss to their company.
It is open to a plaintiff to allege separate breaches of duty against two persons who owe obligations at common law, in equity and pursuant to statute to it, each of which has caused the same loss. Claims by companies against one executive director or senior employee who is a fraudster, and other directors (commonly, non-executive directors) who are alleged to have taken insufficient steps to prevent those frauds, are examples. Such claims are not straightforward forensically at the level of causation, because if both are to succeed, they require the plaintiff to establish that the fraud would have been prevented had the other directors acted in accordance with their duty. In Sheahan v Verco (2001) 79 SASR 109; [2001] SASC 91, appeal dismissed Sheahan v Verco [2002] SASC 68 (Doyle CJ, Lander and Wicks JJ), a liquidator failed against the non-executive directors who had been in breach of duty because even if they had made the proper inquiries of the managing director, there was still no basis to conclude that any different course would have occurred (they would have known of loans and would have received financial accounts and reports, but those accounts and reports would have been positive and shown profitable trading): see 79 SASR 109 at [145]-[149] and [162]. In that case, the breach was ultimately confined to one for breach of the former s 232(4) of the Corporations Law and the claim was ultimately confined on appeal to a statutory amount under former s 232(8)(b) which required the corporation to have suffered loss or damage “as a result of the contravention”. The tests for causation under the Corporations Act 2001 (Cth) are differently worded, but on the view I take nothing turns on this, and all that matters is (as was common ground on appeal) that the plaintiffs needed to establish causation.
In principle, the separate breaches alleged against Mr Bak and Mrs Kim might both sufficiently contribute to the loss suffered by JMW that both directors were liable to account for it. If so, then JMW would be entitled to judgment against each director in the full amount, although the rules against double recovery would prevent enforcement of both judgments.
However, in order to succeed against both directors in the same amounts for their separate breaches of duty, it is necessary for the respondents to establish that each breach separately caused the loss. It was said in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [44], dealing with claims in equity, that “[t]here is no equitable by-pass of the need to establish causation”. The same is true of the claims advanced under statute. Section 1317H requires that the damage “resulted from” the contravention. This means that “only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation”: Adler v Australian Securities and Investments Commission [2003] NSWCA 131; 46 ACSR 504 at [709]. That raises an issue of factual causation: DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts; HSBC Bank Ltd v Abboud; Potts v National Australia Bank Ltd [2022] NSWCA 165; 405 ALR 70 at [259].
If one director in breach of duty would have caused the loss irrespective of awareness or protests or other conduct by the other director, then the latter’s breach will not have been causative of any loss. In short, causation in such a case is not necessarily straightforward, and the more red-blooded one of the breaches is, the more difficult it may be to establish that the other breach was also causative of the loss. That is to say, a plaintiff might succeed in establishing that one director was a determined rogue, who would act in breach come what may, and thereby make it harder or impossible to succeed on the counterfactual causal analysis involved in the claim against the other directors.
The primary judge did not explicitly address causation when dealing with the claim based on breach of duty by Mrs Kim. It should be said immediately that that appears to have been at least in large measure a consequence of the way the case had been advanced before his Honour. By notice of contention, the respondents asked this Court to find that her breaches caused or were a cause of the loss suffered by JMW.
Separate from the above are challenges to the award of interest at court rates on a compound basis, and a challenge to the order that the Killara property be charged to secure the repayment of the outstanding indebtedness to SDC including interest.
One aspect warrants attention at the outset. A variety of labels were used to identify the claims for loss based on the $984,000 paid to the Korean and Japanese companies, and the $50,000 retained to pay the replacement builder, including “Payment Claims” for the former and “Retention Claim” for the latter. Those labels are convenient, but apt to conceal something which may be important. The labelling accurately described how those claims were quantified. However, the nature of the claim varied as against Mr Bak and Mrs Kim. In the case of Mr Bak, it was simply that he in breach of his equitable and statutory duties caused those payments to be made to overseas companies or the new builder. In the case of Mrs Kim, it was that she, by her breach of statutory duties, failed to act with the consequence that the monies paid away by Mr Bak were not prevented.
When the primary judge determined that it was appropriate that there be an award of “compound interest on the Payment and Retention Claims”, no separate consideration was given to the fact that these were separate claims for equitable compensation for loss incurred by reason of separate breaches of duty on the part of Mr Bak and Mrs Kim. On any view of the matter, the quality of Mr Bak’s breach of duty was different from that of Mrs Kim. Mr Bak’s breach was active and Mrs Kim’s breach was passive. Further, the benefit received by Mr Bak and Mrs Kim was different. At least two of the recipients of the funds were companies of which Mr Bak was a director and shareholder. The “Retention Claim” is different, because Mrs Kim was a 99% owner of the land on which the building work was to take place. In short, it is clear that merely because it may be appropriate that Mr Bak be ordered to account to JMW for the loss it suffered by reference to the amounts he caused to be paid to the Korean and Japanese companies on the basis of compound interest at court rates, it does not without more follow that Mrs Kim should be ordered to account to JMW on the same basis. The same is true of the Retention Claim.
None of this was considered by the primary judge who addressed the question of compound interest compendiously. Once again, it should be said immediately that his Honour did not receive the benefit of anything like full submissions on the point. The difference between simple and compound interest at court rates, over a period from 5 May 2021 until judgment on 13 October 2025, is appreciable (by my calculations, it is $305,453.54 as opposed to the $342,402.89 ordered).
The foregoing falls short of comprehensively listing the many issues which arise on the separate appeals brought by Mr Bak and Mrs Kim, including on the respondents’ notice of contention, but it includes those of greatest significance. The reasons of Black J enable me to be much more concise than would otherwise be the case.
At one stage, there was a suggestion that the certificate of insurance, without which no building work could lawfully be taken, post-dated the execution of the contract by a few days and accordingly had to be disregarded. I do not think that is right; this was a contract no aspect of which could be regarded as completed until all necessary documents were executed. The certificate of insurance names Mr Bak, but that does not stand in the way of the conclusion that he had procured his and his wife’s company to cause SDC to build on their land.
Of course, standing against all of this is the fact that it was Mr Bak and Mrs Kim who owned the land on which the building works were to occur. Mr Bak sought to buttress that basal aspect of the context by a submission that the structure of the Home Building Act precluded a non-owner such as JM World AU Pty Ltd executing such a contract as “Owner”. I do not accept that submission. Section 18D makes express provision for a “non-contracting owner” – who nonetheless receive the benefit of the statutory warranties – which makes it very difficult to imply the restriction for which Mr Bak contends. In principle, there is no reason why the owner of land and a builder may not agree that a company will promise to make available access and the entitlement to perform building works on the land and be liable to the builder to make payment for those works. I do not see why, by way of implication, the legislation should prevent landowners and builders from contracting on that basis.
The proposition, developed at length in oral submissions, that the failure to use the method of binding a company provided by s 127 of the Corporations Act bears upon the legal position which obtains does not withstand scrutiny. Counsel for neither appellant was able to explain why a concededly facultative provision not being availed of in any way bore upon the legal characterisation of the contract.
However, the primary judge found that JM World Korea, Skin & Co Ltd and Aster Biyou were not creditors of JMW. This introduces a deal of complexity into the counterfactual analysis. Let it be assumed that Mrs Kim, if acting in compliance with her obligations, knew or believed that the companies were not creditors. I do not see that that affects the counterfactual analysis in any material way. Mr Bak would have told Mrs Kim, just as he said repeatedly under oath, that those companies were creditors. He had invoices which he said demonstrated this. On the findings made by his Honour in the first judgment, Mr Bak was wrong about that. On the findings made by his Honour in the second judgment at [27], Mr Bak was nonetheless not shown to have committed fraud or relevant misconduct.
On this counterfactual scenario, the company would have been deadlocked, but in circumstances where as a matter of practical reality, Mr Bak and only Mr Bak had power over the company’s bank account. It is very difficult to see what protest Mrs Kim would make, in the counterfactual world in which she had complied with her duties and was aware of the proceeds of sale of the Roseville property and the perilous state of JMW’s finances, which would dissuade Mr Bak from making the payments to what he regarded as JMW’s suppliers.
Suppose for example Mrs Kim had said that Mr Bak could not pay most of the company’s assets to offshore creditors given the judgment debt owing to SDC. What would have happened then? She might have said there should be a formal meeting of the board, or of the members of the company. She might have resigned as a director. She might have sought legal advice. Would this have made a difference to Mr Bak, a man who though not found to have committed fraud or relevant misconduct, was found to have acted in flagrant disregard of the interests of creditors?
I have reproduced the preceding paragraph in order to expose what is contemplated by the submission that Mrs Kim’s conduct “enabled” Mr Bak to transfer away assets, or that she “could and would” have been able to prevent him from doing so. But it is for the respondents who have obtained the benefit of a finding that Mr Bak acted in flagrant disregard of his obligations to creditors, and who ran a case that Mr Bak had manufactured a false invoice (albeit that the judge was unpersuaded that fraud had been made out), to establish that Mrs Kim would have prevented him transferring money from JMW. The respondents did not in their notice of contention or submissions identify why that was so or what Mrs Kim would have done had she not been in breach of her duties. The preceding paragraph illustrates that the finding which the respondents ask this Court to make is not self-evident.
Rather than engaging with the various counterfactual possibilities alluded to above, the respondents’ answer presented in oral submissions was that (a) there was an irreducible core of duties with which Mrs Kim must be taken to have complied and (b) if Mr Bak’s conduct were to be relied upon as a novus actus interveniens, then it was for Mrs Kim to plead it. I do not accept either answer. Invoking an irreducible core of duties of a director does not answer the question of causation, which is a question of fact (albeit counterfactual fact). Invoking a need to plead novus actus interveniens is an attempt to shift the onus of proving causation from the plaintiff to the defendant, and I do not think that is correct. Moreover, Mr Bak’s transfer of funds was not the “intervening conduct of a third party” but the immediate cause of the loss by a director who owed equitable and statutory duties to the plaintiffs on which they sued. To reiterate, the respondents had to establish that Mrs Kim, had she complied with her duties, would have prevented the transfers made by Mr Bak. Their case as I see it turned on there being two separate chains of causation, each of which was sufficient to render Mr Bak and Mrs Kim liable.
I should add that after the oral submissions reproduced above, Black J observed:
I reach that conclusion without regard to Mrs Kim’s mental illness. However, the fact of that illness strengthens the conclusion, because it would have been easier for Mr Bak to answer his wife’s questions in a way which would have still permitted him to transfer the funds.
For those reasons, the respondents have failed to persuade me that that this Court should make the finding sought by their notice of contention that Mrs Kim would have prevented Mr Bak’s transfer of funds on 5 May 2021. It follows that ground 2 is made out.
JMW was wound up by the Court on 22 June 2021 and the second respondent to the appeals, Mr Taylor, was appointed as its liquidator (“Liquidator”). Proceedings were commenced against Mr Bak and Ms Kim by JMW and the Liquidator on 21 September 2022.
The primary judge noted (Judgment [115]–[116]) that, when the proceedings went to hearing, JMW and the Liquidator pressed a claim for:
Mr Young also submitted that:
Second, Mr Young advanced several submissions that are directed to the question whether the Contract was required, by the HBA, to be with the owner of the property on which the building work was being conducted. Relevantly, s 18B of the HBA implies certain warranties by, relevantly, the holder of a contractor licence in every contract to do residential building work. That section would apply whether or not JMW was the owner of the property, although I recognise that difficulties as to the quantification of loss may arise where it was not. Section 92(1) of the HBA provides that a person must not do residential building work under a contract unless a contract of insurance that complies with the HBA is in force in relation to that work in the name under which the person contracted to do the work and a certificate of insurance evidencing the contract of insurance, in the prescribed form, has been provided to the other party (or one of the other parties) to the contract. Section 92(2) of the HBA prevents a person receiving a payment for a contract for residential building work unless those requirements are satisfied.
The first of the requirements in s 92(1) of the HBA is plainly that the insurance contract be in the name of the contractor, being the person who contracted to do the work, rather than in the name of the client who contracts to have the work done. That requirement was satisfied here, since an insurance certificate was issued in the name of SDC, which provided that:
Fourth, Mr Young also pointed to other evidence of dealings between SDC and Mr Bak after entry into the Contract. Mr Young submitted, in less than a fully reasoned criticism of BH Australia, that that judgment was too “restrictive” and that the analogy with physics (and, presumably, Leeming JA’s reference to Schrödinger’s cat) was not “entirely apt”. Mr Young also submitted that reference to subsequent conduct is not inconsistent with the objective theory of contract, provided that it is considered as part of the ascertainment of intention under the objective theory of contract; that subsequent conduct does not change the contract; and that it “merely gives light or assistance to the determination of issues at the time at which the contract came into existence”. I do not accept that submission, so far as it is put as a basis for departing from the approach in BH Australia. The difficulty with that submission is demonstrated by a case, not far from this case, where the objective evidence demonstrates that a company was party to a contract at the time it was executed and invoices were later sent to or paid by an individual associated with the company for convenience; or, conversely, the objective evidence demonstrates that a contract was made with an individual and, for convenience, invoices were later sent to or paid by a company associated with that individual. It may be that, in some cases, that conduct will amount to a variation of the contract by conduct, or create an estoppel which affects the way in which the contract may be enforced, although no such contention was put by Mr Bak here. It seems to me that, in principle and for the reasons that Leeming JA indicated in BH Australia, that later conduct cannot have retrospective effect so as to alter the identity of the parties to the Contract, as determined objectively at the time the Contract was executed.
As Mr Young emphasised in submissions, many subsequent invoices issued by SDC under the Contract were addressed to Mr Bak, and I note that they attached progress payment certificates issued by the architect which certified amounts due under the Contract which also referred to Mr Bak. The notice that SDC was suspending work in respect of the Contract was also issued to Mr Bak and did not expressly refer to JMW. Mr Young pointed out that the first time JMW was identified in an invoice was in a later tax invoice dated 8 October 2020, after SDC had taken legal advice and made a claim under the SOPA. Even if that evidence were relevant to determining the identity of the parties to the Contract, despite the approach taken in BH Australia, that conduct was equivocal, where Mr Coddington of SDC had given evidence at first instance of the system adopted by SDC for invoicing, which had regard to the contact party recorded against the relevant job number, relevantly Mr Bak, rather than to the identify of the particular client, and the primary judge had accepted that evidence. Those matters could not displace an inference arising from the Contract itself that JMW rather than Mr Bak was party to the Contract.
I also recognise that, as Mr Young pointed out, the entry into a residential building contract in the name of a party other than the owner could, at the relevant time, have adverse consequences for that owner, so far as it exposed the contracting party to the potential for an application under the SOPA which could not (at that time) have been brought in respect of a home building contract made directly with the owner. (For completeness, that position subsequently changed, by an amendment extending the application of the SOPA to contracts made with a residential home owner). While I recognise that consequence of the form of that Contract, it also does not seem to me to be sufficient to displace the inference arising from the Contract itself that JMW rather than Mr Bak was party to the Contract.
Having regard to all of these matters, it seems to me that the primary judge was correct in finding that JMW rather than Mr Bak was party to the Contract. Mr Bak had executed the Contract which identified JMW as the contracting party and filled in the word “director” next to “capacity” to designate the capacity in which he was signing the Contract. As the primary judge held (Judgment [141]–[143]), that conduct is only explicable as a step in Mr Bak’s executing the Contract on behalf of JMW. If Mr Bak’s subjective intent was relevant, the primary judge rejected Mr Bak’s explanation that he wrote the word “director” to identify his occupation only, and there is no reason to doubt that finding, where that explanation was implausible in the circumstances and where his Honour identified wider reasons to doubt Mr Bak’s evidence. Objectively, a contract that named JMW as party (although wrongly describing it as the “Owner” of the Killara Property) and which indicated that Mr Bak executed the Contract as JMW’s director could only be understood as a contract between JMW and SDC. Although the entry into the Contract with JMW and the associated contract of insurance in the name of Mr Bak (and not Ms Kim, who had a 99/100 share in the Killara Property) was plainly untidy, it did not contravene any requirement under the HBA, which relevantly required that a contract of insurance be in force which complied with the HBA in respect of the building work. Such a contract of insurance was here taken out in the name of Mr Bak and s 92C of the HBA then extended its operation to protect Ms Kim’s interest. These grounds of appeal fail for these reasons.
Third, as Mr Maroya pointed out, his Honour held that Ms Kim had acted honestly throughout. It follows that, had Ms Kim actively participated in JMW’s affairs, she would have opposed and declined to authorise the entry into the Contract by JMW, the payments to the Korean and Japanese companies and the retention because the contrary position would not be consistent with her honesty. Fourth, although the primary judge indicated that he approached Mr Bak’s evidence with caution, Mr Bak did not contend and his Honour did not find that Mr Bak was generally a dishonest person or that he had acted dishonestly (as distinct from improperly) in entering the Contract, or making the payments to the Korean and Japanese companies or causing the retention. To the contrary, his Honour observed (Orders Judgment [27]) that:
Leeming JA points (in paragraph 56 above) to the “nuanced” character of the primary judge’s findings as to Mr Bak, and I recognise that, for all of the reasons noted by Leeming JA, it would have been open to the primary judge to have been less charitable in his findings as to Mr Bak’s honesty or propriety, particularly in his Orders Judgment. However, as I noted above, neither Ms Kim nor Mr Bak contended at first instance that Mr Bak was dishonest by nature or generally prone to acting with impropriety, and the primary judge did not reach such a finding. My primary difference with Leeming JA’s judgment is that, in those circumstances, I would not now assume, in Ms Kim’s favour, that Mr Bak would have acted improperly in ignoring concerns that she had raised as to the impugned transactions, where she and Mr Bak did not contend that he would have done so and the primary judge did not find that he would have done so.
I recognise Mr Bak’s control of JMW’s bank accounts (to which Leeming JA refers in paragraph 77 above), but there was no suggestion at first instance that Mr Bak would have improperly exercised that control to pay out those funds over Ms Kim’s objection. I am not persuaded that the explanation postulated by Leeming JA in paragraphs 83 and 84 above would have been an answer to concerns properly raised by Ms Kim, where it would not have provided any justification for paying the asserted debts of the three foreign companies to the exclusion of JMW’s known debts to SDC and the Australian Taxation Office. I also do not share the view expressed by Leeming JA in paragraph 86 above, and in the implied answer to the hypothetical question posed in paragraph 87, because I infer that a protest by Ms Kim would have dissuaded Mr Bak from taking the impugned steps. As I have noted above, Mr Bak and Ms Kim did not contend, and the primary judge did not find, that Mr Bak was generally dishonest or generally prone to impropriety, although Mr Bak here preferred the interests of the foreign companies to those of SDC and the Australian Tax Office in the impugned transactions
In any event, the steps that Ms Kim could have taken were not limited to dissuading Mr Bak from taking the impugned actions. As Leeming JA recognises, in this case and generally, and even if there was reason to think that one director would be inclined to disregard another director’s intervention, there are steps that the other director can take to avoid a company’s loss. These at least include convening a meeting of the company’s directors to address a wrongful transaction and ultimately, if the other director persists with the transaction, resigning as a director and advising the Australian Securities & Investments Commission of the reason for that resignation: compare Re Regional Express Holdings Ltd [2026] NSWSC 756 at [399]. For completeness, I do not consider that Ms Kim’s mental health issues affect that analysis, where we have upheld the primary judge’s finding that these issues were of an intermittent character. I also do not think that the primary judge’s finding referred to in paragraph 94 of Leeming JA’s judgment can be narrowed to the matter to which Leeming JA refers.
I should also make three comments of somewhat wider application. First, it seems to me that a director’s role as a gatekeeper, on whom shareholders and creditors of a company are reliant to minimise the risk of loss, provides the context in which questions of causation in cases involving inactive directors should be approached. Second, the differences between the approach taken by Leeming JA and the approach which I have adopted may have something in common with the differences of view that have also arisen in earlier cases concerning s 556 of the Companies Code, to which I have referred in paragraph 180ff above. Third, even if breach of duty and causation is established in a particular case, a director can be relieved from liability under ss 1317S or 1318 of the Act*.* Ms Kim was not successful in her application for relief under those sections before the primary judge, and I address the appeal against his Honour’s finding as to that matter below.
For completeness, Leeming JA also addresses the circumstances of the entry into the Contract in the name of JMW in paragraph 37 above. As I noted above, there was no appeal against the primary judge’s finding of breach of duty in that regard. Whether the entry into the Contract could have been ratified or the directors’ duties narrowed by informed consent would depend on the impact of entry into the Contract on JMW’s solvency, which was not fully explored where there was no contest as to the fact of that breach.
I also do not accept Mr Maroya’s attempt to distinguish the observations of Brereton J in Cummings Engineering on the basis that his Honour had there found the relevant director was not honest. While that is correct, his Honour’s observations as to the significance of third-party prejudice were not limited to that situation and had more general application. Mr Maroya fairly acknowledged, in oral submissions, that the prejudice to JMW and its creditors, if Ms Kim was relieved from liability, was exacerbated by the fact that the ownership of the Killara Property was heavily weighted in Ms Kim’s favour, where she held a 99% interest and Mr Bak a 1% interest; and that prejudice is reinforced by the fact that Mr Bak spent a significant amount of time in Korea and there is no suggestion that he had any Australian assets other than his interest in the Killara Property.
Mr Maroya also submitted, by reference to Judgment [271], that the primary judge had not given any consideration to Ms Kim’s illness when his Honour referred to the effect upon JMW of releasing her from liability. I do not accept that submission, where his Honour had plainly recognised that issue, both at Judgment [269] and in his full treatment of this issue earlier in the Judgment, to which I have referred above. It seems to me that Ms Kim’s fifth ground of appeal is not established, where the consequence of relieving Ms Kim from liability was plainly a relevant consideration to the exercise of discretion, although it needed to be weighed, as the primary judge had done, against other relevant circumstances including Ms Kim’s health issues.
Ms Kim’s sixth ground of appeal is that the primary judge erred (Judgment [105]–[112] and [269]) in failing to make relevant findings as to whether, on the medical evidence referred to in those paragraphs, Ms Kim ought fairly be excused from liability. I have quoted his Honour’s findings in the relevant paragraphs of the Judgment above. It seems to me that the compliant of a failure to reach relevant findings has no substance, where his Honour had engaged, in detail, with the relevant evidence and plainly had regard to it (as Judgment [269] indicated) in reaching his conclusion as to relief from liability under ss 1317S and 1318 of the Act.
Mr Maroya also submitted that the primary judge had (Judgment [111]) misapprehended the references in the expert evidence to Ms Kim’s condition “waxing and waning”, with the implication that there were periods in which her health was less of an impediment to the performance of her duties. I do not accept that submission. His Honour’s observation as to the changes in the extent to which Ms Kim’s health issues reduced her abilities over time was supported by the observations of the experts in their joint report that they agreed, inter alia: