van Royden v DSHE Holdings Limited ACN 166 237 841

Background

1. Before dealing with the application itself, it is necessary to say something about the background to the proceeding.
2. DSHE was a company listed on the Australian Stock Exchange. It operated a substantial number of retail electrical stores throughout Australia, trading under the name "Dick Smith". It was placed in voluntary administration on 4 January 2016 and voluntary liquidation on 25 July 2016.
3. Mr van Royden was a shareholder in DSHE at the time of its collapse. He held 305,000 ordinary fully paid shares which he had acquired during December 2015 for a total price of $107,367. He commenced these proceedings by statement of claim on 26 April 2018 in the General List without leave. DSHE and two of its executive directors, Mr Nicholas Abboud and Mr Michael Potts, were named as defendants. The statement of claim did not plead Mr van Royden's claim. It did, however, seek leave to proceed under s 500(2) and identified various sections of the Corporations Act under which the claim was said to be made.
4. At the time Mr van Royden commenced the proceeding, there were relevantly two representative proceedings before the Court arising from the collapse of DSHE. Both proceedings are brought on behalf of shareholders of DSHE. One proceeding, brought by Mr and Mrs Findlay, is brought on behalf of shareholders in DSHE who acquired their shares during the period commencing on 16 February 2015 and concluding on 3 January 2016. The other proceeding is brought by Mr Epaminondas Mastoris on behalf of shareholders who acquired their shares after November 2013 and who are not members of the Findlay class.
5. It is plain that Mr van Royden is a group member of the class of persons on whose behalf the Findlay proceeding is brought and it is sufficient for present purposes to focus on that proceeding.
6. Like Mr van Royden's claim, the Findlay proceeding is brought against DSHE, Mr Abboud and Mr Potts. It is alleged in those proceedings that DSHE, Mr Abboud and Mr Potts made a number of representations that were misleading or deceptive in contravention of ss 1041E and 1041H of the Corporations Act. Those representations include various misleading statements in the 2015 half year financial statements and the 2015 full year financial statements concerning the financial position of DSHE and the entities that it controlled.
7. Mr van Royden's proceeding was stayed pending a decision by him whether to opt out of the Findlay proceeding on the basis that it would be an abuse of process for him to pursue his own proceeding and remain a group member of another proceeding in which substantially similar allegations were made against the same defendants.
8. On 15 September 2018, in accordance with directions previously given by the Court in the two representative proceedings, Mr van Royden lodged with the Court a notice electing to opt out of the Findlay proceeding. However, it remained open to him to opt back in to that proceeding by 19 November 2018.
9. On 2 October 2018, Mr van Royden filed a notice of motion seeking the following orders, among others: 1. The Plaintiff requests that the Plaintiff's claim be fast tracked to be heard as quickly as possible and heard by the same judge (Justice Ball) that heard the other Dick Smith Holdings actions by shareholders - with the objective that the Plaintiff participate in the Dick Smith mediation planned by the Supreme Court of New South Wales scheduled for mid-November 2018. Maria Kourtis, the Associate to the Hon Justice Michael Ball, confirmed that the motion can be listed before Justice Ball at 9.00am on Wednesday 10 October 2018; 2. The Plaintiff requests that, if the resolution of order 1 does not provide the Plaintiff reasonable participation in the related Dick Smith actions by mid-November 2018, then the Dick Smith mediation planned by the Supreme Court of New South Wales (scheduled for mid-November 2018) be stayed or postponed until the Plaintiff's section 500(2) Corporations Act 2001 (Cth) request to proceed has been determined;
10. On 23 October 2018, in accordance with directions made by the Court on 10 October 2018, Mr van Royden provided to my Associate a proposed Amended Statement of Claim. The total amount claimed in that Statement of Claim is $133,020.81, although para 2 of the relief claimed states that the plaintiff's claim "is comprised of both liquidated and unliquidated damages plus includes, but is not limited, to any psychiatric illness or psychological damage; distress and humiliation; and for past, present and future consequential economic loss caused by the Defendants' alleged wrongdoing".
11. The proposed Amended Statement of Claim identifies four heads of claim against DSHE. It is defective in a number of important respects.
12. First, it is alleged that DSHE, by making and/or failing to correct or qualify certain ASX announcements, breached specified provisions of the Corporations Act, including ss 674 (dealing with continuous disclosure obligations); 1041F (dealing with conduct inducing a person to deal in financial products by making or publishing a statement the person knows or is reckless as to whether the statement is misleading, false or deceptive or by dishonest concealment of material facts); and 1041G (prohibiting a person in the course of carrying on a financial services business from engaging in dishonest conduct). These are serious allegations. However, nowhere in the pleading is it stated what DSHE knew and concealed or what statements in the ASX announcements were false.
13. Second, it is alleged that, by making the same ASX announcements, DSHE engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law, s 12GF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and s 12DA of the ASIC Act together with a number of other provisions of the Corporations Act. Again, however, apart from those broad conclusory statements, the pleading contains no allegations of material facts concerning the conduct on which Mr van Royden relies.
14. Third, Mr van Royden alleges that the defendants (including DSHE) engaged in insolvent trading in contravention of s 588G of the Corporations Act. However, that section plainly applies to directors of the corporation, not the corporation itself.
15. Fourth, the proposed Amended Statement of Claim alleges that by making and/or failing to correct or qualify the ASX announcements, the defendants engaged in unconscionable conduct in contravention of ss 20 and 21 of the Australian Consumer Law and s 12GF of the ASIC Act, among others. Again, however, there is no pleading of how the relevant ASX announcements amounted to unconscionable conduct.

Section 500(2) of the Corporations Act

1. Section 500(2) of the Corporations Act provides: After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.
2. The principles applicable to a grant of leave under s 500(2) were stated in these terms by Black J In the matter of DSHE Holdings Limited (recs and mgrs apptd) (in liq) [2018] NSWSC 82 at [18]: Broadly, the purpose of this section is to prevent a company's assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up: Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669; (1983) 1 ACLC 742; HFPS Pty Ltd (Trustee) v Tamaya Resources Ltd (in liq) (No 1) [2016] FCA 442 at [18]. The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise: Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374; (1969) 90 WN (Pt 1) (NSW) 107; Swaby v Lift Capital Partners Pty Ltd (in liq) [2009] FCA 749; (2009) 72 ACSR 627 at [29]; Global Partners Fund Ltd v Babcock & Brown (in liq) [2010] NSWSC 270; (2010) 267 ALR 144 at [169], on appeal [2010] NSWCA 196; (2010) 79 ACSR 383 at [47], [93]; Applied Leasing Centre Australia Pty Ltd v Shepard [2011] FCA 443. Leave under this section will more readily be granted where a claim is likely to be, or is arguably, covered by insurance: Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203 at 204; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (recs and mgrs apptd) (in liq) (No 2) [2009] FCA 42 at [42]-[45]; Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408 at [13].

Consideration

1. I formed the view that, in contrast to the normal position, absent leave, Mr van Royden would still have a mechanism available to him to vindicate his rights, since there was still time in which he could elect to remain a group member of the Findlay proceeding. Given that option, there were strong reasons for not putting the liquidator to the additional cost and burden of defending a further claim based on substantially the same facts. Those costs are likely to be significant and may well be greater than the total amount in dispute. To require the liquidator to defend a claim in those circumstances would not be a proper use of the liquidator's limited resources.
2. Mr van Royden pointed out that the case that he was seeking to bring was different from the one advanced in the Findlay proceeding; and he submitted that that was a reason for permitting him to bring his claim. The difficulty with that submission is that, as pleaded, Mr van Royden's current claim is seriously defective. It was not clear from the material before the Court that Mr van Royden would be able to formulate a claim that was sufficiently different from the claim in the Findlay proceeding that it would be appropriate to permit him to bring that claim notwithstanding his option to remain a group member of that proceeding. Moreover, in my opinion, there were other difficulties with a submission that Mr van Royden should be entitled to bring his own claim because it differed substantially from the claim brought in the Findlay proceeding. The closer the claim sought to be brought by Mr van Royden against the liquidator is to the claim brought in the Findlay proceeding, the less reason there would be to give leave. On the other hand, the greater the difference, the more likely it is that the claim would impose greater costs on the liquidator in defending it. Having regard to the amount in issue and the availability of an alternative remedy, those matters in combination provided a reason for refusing leave.
3. The position might have been different if Mr van Royden had been able to establish that the Findlay proceeding was not being managed efficiently in the interests of all group members or that the claim that was advanced in that proceeding was defective for some reason or inferior to a claim that could be brought. However, Mr van Royden did not seek to establish any of those matters.
4. Mr van Royden also submitted that the provisions of the Civil Procedure Act 2005 (NSW) dealing with representative proceedings specifically permitted a group member to opt out of proceedings so that the group member could pursue their own action. That right would be undermined if the Court refused leave. In addition, it was unreasonable that he should be forced to remain a group member in order to pursue his rights in circumstances where he had no control over the proceeding that would decide those rights.
5. However, in my opinion, neither of these points was compelling in the circumstances of this case. The right to opt out is not undermined by a refusal to grant leave. Rather, a failure to obtain leave is one of the circumstances that Mr van Royden had to consider in deciding whether to opt out or, more accurately, not to opt back in to the Findlay proceeding. The refusal to grant leave would not itself undermine that right.
6. It is true that Mr van Royden will not have the same control over the representative proceeding as he would have over his own proceeding. However, it is not correct to say that he would have no control. Any settlement of the proceeding will have to be approved by the Court and Mr van Royden will have the ability to object to the settlement if he believes that it is not in the interests of group members (including himself). He will have no control over the way the representative proceeding is run insofar as it deals with common questions. However, he is likely to have some say if it becomes necessary to assess the quantum of the claims of individual group members. Moreover, as I have said, Mr van Royden does not point to any aspect of the management of the Findlay proceeding which he says is unsatisfactory.
7. There is a suggestion in some of Mr van Royden's submissions and in the orders sought in his motion that he should be entitled to commence his own proceeding because that proceeding will be dealt with more quickly than if he were forced to depend on the representative proceeding. However, to the extent that that is the basis of Mr van Royden's application, it is misplaced. Mr van Royden's application appeared to proceed on the basis that his case would be heard at the same time as the common questions in the two representative proceedings. However, that was unlikely to have happened. Twelve weeks have already been set aside commencing in September 2019 for the hearing of the two representative proceedings and two other large claims by the lenders and receivers of DSHE. It would not be conducive to the efficient management of the claims for the Court to seek to deal with individual shareholder claims at the same time. That would also be likely to place an unfair burden on Mr Abboud and Mr Potts, who are defendants in each of the proceedings. Moreover, having regard to the state of Mr van Royden's statement of claim, it was far from obvious that his case could be got ready for a hearing commencing in September next year. Finally, to the extent that Mr van Royden was seeking to obtain an advantage (in terms of an earlier resolution of his claim) over all other group members, that did not seem to me to be a proper reason for giving him leave.
8. Accordingly, I dismissed Mr van Royden's application for leave under s 500(2) of the Corporations Act.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2018