Ho v Akai Pty Limited

NEIL ROBERT CUSSEN IN HIS CAPACITY AS LIQUIDATOR AS AKAI PTY LTD (IN LIQUIDATION)

JUDGE: FINN, WEINBERG & RARES JJ DATE OF ORDER: 13 NOVEMBER 2006

1. The application for leave to appeal be granted.
2. The appeal be dismissed.
3. The parties provide written submissions on the question of costs within seven days of the date of this judgment. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

AND: AKAI PTY LIMITED (IN LIQUIDATION) ACN 001 500 714

NEIL ROBERT CUSSEN IN HIS CAPACITY AS LIQUIDATOR OF AKAI PTY LIMITED (IN LIQUIDATION) ACN 001 500 714

NEIL ROBERT CUSSEN IN HIS CAPACITY AS LIQUIDATOR AS AKAI PTY LIMITED (IN LIQUIDATION)

REASONS FOR JUDGMENT 1 The motions for leave to appeal and the proposed appeals in these two matters have been heard concurrently in consequence of orders made by Rares J. Both appeals are against orders made by Gyles J under O 9 r 7 of the Federal Court Rules, which set aside in part an application and its service outside the jurisdiction on four respondents. Three other respondents were named in the application but have not been served. The application raised a variety of claims under the Corporations Law and the Corporations Act 2001 (Cth) as well as under the general law in respect of the respondents' alleged involvement in the management of, or responsibility to, a company which is now in liquidation.

BACKGROUND 2 The application served was brought by Akai Pty Limited (in liq) ("Akai Australia") and the company's liquidator. Akai Australia was, until shortly before the appointment of a provisional liquidator on 22 March 2000, the sole distributor in Australia and New Zealand of the "Akai" brand of electronic goods. It was part of a group of companies the ultimate holding company of which was a Bermudan company listed on the Hong Kong Stock Exchange, Akai Holdings Ltd ("Akai Holdings"). On 13 April 2000 Akai Australia was wound up. 3 By mid-1999 it was apparent that the Akai group of companies was in financial difficulties. In late 1999 an arrangement was come to between that group and another group, the Grande group, the ultimate parent of which was The Grande Holdings Ltd ("Grande Holdings"), a Bermudan company listed on the Hong Kong Stock Exchange. The apparent purpose of the arrangement was to allow the Grande group to consider whether it would proceed with a rescue package for the Akai group, or acquire the "Akai" brand for use in its own electronics business. Part of the arrangement involved one member of the Grande group, The Grande Group Limited ("Grande Group Limited"), a Singaporean company, managing the business of Akai Holdings, its subsidiaries and affiliates. This was formalised in what was described as a "Management Agreement" dated 12 November 1999 between Akai Holdings and Grande Group Limited ("the Agreement"). Relevantly, it provided: "MANAGEMENT AUTHORITY. In consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Akai has transferred to Grande all authority to manage the Business of Akai. It is intended that this agreement will evidence that Grande is authorized to perform all actions, execute all documents, and otherwise conduct the Business of Akai in such a manner as Grande shall consider appropriate, in the sole discretion of Grande, including, without limitation, (i) managing all financial matters of Akai, (ii) managing all legal matters involving Akai, including defending all litigation to which Akai is a party, or bringing lawsuits on behalf of Akai against third parties, retaining outside counsel and consultants to represent Akai in litigation proceedings for or against Akai and filing all documents and taking all action in such proceedings on behalf of Akai, (iii) executing and filing on behalf of Akai claims Akai has against third parties, (iv) causing Grande employees to be responsible for the financial, accounting, operational, legal, corporate, administrative or other matters involving Akai, and (v) generally conducting all aspects of the Business of Akai in such a manner as Grande shall consider appropriate." 4 As used in the Agreement, "Akai" meant Akai Holdings and all of its subsidiaries and affiliates. "Business of Akai" meant: "all business activities of Akai, including without limitation all financial, operational, legal, corporate, administrative and other matters involving Akai." 5 Christopher Ho, a party to the present appeals, was the President and Group Chief Executive of Grande Holdings. He indirectly controlled 74.9 per cent of the issued share capital of that company. Grande Holdings also is a party to the appeals. Ho signed the Agreement with Akai Holdings on behalf of Grande Group Limited. There is no evidence that he had ever been a director of that company. 6 Michael Binney, who was one of the respondents served but who has not challenged that service, was the principal Grande group official concerned with the effectuation of the Agreement vis-à-vis Akai Australia. He was not an officer of Grande Group Limited although he appears to have belonged to the senior management of the Grande group. 7 As Gyles J noted, (i) there was a prima facie case that Akai Australia was insolvent by at least the time of the Agreement; (ii) there equally was an "ample prima facie case" that there were reasonable grounds to suspect that insolvency at all material times; and (iii) Akai Australia's Statement of Claim identified three causes of loss which it claimed to have suffered thereafter: namely - general insolvent trading; a transaction in mid January 2000 known as the "Capetronics transaction"; and events in February 2000 known as the "Silver Phoenix transaction". There was a prima facie case that these were vulnerable transactions that caused loss to Akai Australia. 8 The claims made in the application which are of present relevance are: 1(a) Declarations that Ho, Grande Group Limited and Grande Holdings, as deemed (or "shadow") directors of Akai Australia, contravened s 588G of the Corporations Law and/or the Corporations Act (i.e. the insolvent trading provisions); 1(b) Orders under s 588J requiring each of Ho, Grande Group Limited and Grande Holdings to compensate Akai Australia for loss and damage incurred as a consequence of such contraventions; 2(a) Declarations that Ho, Grande Group Limited, Grande Holdings and Binney, as deemed directors and/or as deemed officers of Akai Australia contravened ss 180, 181 and 182 of the Corporations Law and/or Corporations Act (i.e. the directors and officers duties provisions); 2(b) Orders pursuant to s 1317H of the Corporations Law and/or the Corporations Act requiring each of Ho, Grande Group Limited, Grande Holdings and Binney to compensate Akai Australia in respect of damage resulting from such contraventions; 3(a) Declarations that Grande Group Limited and Grande Holdings, as holding companies of Akai Australia, have contravened s 588V of the Corporations Law and/or Corporations Act (i.e. the liability of a holding company for insolvent trading by a subsidiary); and 3(b) Orders pursuant to s 588W requiring each of Grande Group Limited and Grande Holdings to compensate Akai Australia for loss and damage incurred in consequence of such contraventions. 9 The motion before Gyles J under O 9 r 7 of the Federal Court Rules to set aside the application and its service on Ho and Grande Holdings generally and on Grande Group Limited in part, was in the nature of a review, by way of rehearing of the original decision of a judge of this Court to grant leave under the then O 8 r 2 to serve outside the jurisdiction. The only issue before Gyles J in that regard was whether Akai Holdings and its liquidator had established a prima facie case for the relief sought in the proceeding: see O 8 r 2(2)(c); see now O 8 r 3(2)(c). 10 As has been observed on many occasions, the prima facie case requirement has to be met at the outset, usually on an ex parte basis, and without the advantage of discovery and other procedural aids to the making out of a case: see e.g. Merpro Montassa Ltd v Conoco Specialty Products Inc (1991) 28 FCR 387 at 390. It "should not call for a substantial inquiry": WSGAL Pty Ltd v Trade Practices Commission (1992) 39 FCR 472 at 476; see also Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549. For present purposes it is sufficient to say that a prima facie case for relief is made out if, on the material before the court, inferences are open which, if translated into findings of fact, would support the relief claimed: Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 30 FCR 102 at 110. Or, to put the matter more prosaically as Lee J did in Century Insurance (in provisional liquidation) v New Zealand Guardian Trust [1996] FCA 376: "What the Court must determine is whether the case made out on the material presented shows that a controversy exists between the parties that warrants the use of the Court's processes to resolve it and whether causing a proposed respondent to be involved in litigation in the Court in Australia is justified."

The prima facie cases: the primary judge's decisions 11 We need only refer here to his Honour's conclusions as it will be necessary to refer the evidentiary material on which they were based when considering the various grounds of appeal. 12 As to Mr Ho, Gyles J concluded there was no sufficient basis to raise an arguable case that he was a shadow director, but that in light of the decision of Santow J in Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 there was an arguable case that he was an "officer" of Akai Australia. Because of the construction given O 8 r 2(2)(c) by the majority of this Court in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 - a matter later considered - the finding that there was a prima facie case that Ho was an officer of Akai had the consequence that he could be proceeded against on both the officer and shadow director bases, Gyles J having held that a prima facie case had been made "for the relief sought". 13 Mr Ho has appealed against the "officer" holding and, in the event that he is unsuccessful in this, he has challenged the correctness of Bray's case which has permitted him to be proceeded against as a shadow director. Mr Ho has appealed as well against what is said to be an incorrect application of Bray's case in any event. It is contended that the relief sought against him in the officer claim is not substantially the same as that sought in the shadow director claim, hence there was no prima facie case for the latter relief. For its part Akai Australia has, by Notice of Contention, contended that Gyles J's order should be affirmed on the basis that Mr Ho was a shadow director. 14 As to Grande Holdings, his Honour concluded there was a prima facie case for relief against the company both as a shadow director and as an officer of Akai. Grande Holdings has appealed against both of these findings. His Honour, though, did not accept that a prima facie case had been established that Grande Holdings was liable as a holding company for the insolvent trading of Akai Australia. Akai Australia and the liquidator have appealed against that conclusion. 15 As to Grande Group Limited, it did not challenge the service in relation to the officer and shadow director claims against it. It did challenge the claim for liability as a holding company for Akai Australia's insolvent trading. This claim and its service was set aside. Akai Australia has appealed against this holding.

THE APPEAL 16 As a matter of convenience, we will consider the various parties' grounds of appeal and Akai Australia's Notice of Contention in three groupings: (i) The shadow director/officer claims against Mr Ho; (ii) The shadow director/officer claims against Grande Holdings; and (iii) The holding company claims against Grande Group Limited and Grande Holdings. It will be necessary in relation to the first two of these in particular to provide a relatively brief account of the relevant evidence said to establish prima facie cases.

(i) The shadow director/officer claims against Mr Ho

The factual context 17 Reference has already been made to the Agreement; to its apparent purpose; and to its signing by Mr Ho for Grande Group Limited, although there is no suggestion in the evidence that he ever was a director or officer of that company. Equally there is no evidence to suggest that Grande group officers who gave instructions to the Akai Australia directors and officers - Mr Yuen, Mr Lam and, principally, Mr Binney - were officers or directors of Grande Group Limited. Mr Yuen was a director of Grande Holdings. Mr Suzuki, Akai Australia's managing director appears to have regarded Mr Binney as an officer of Grande Holdings and he is so described in some bank documents. Counsel did not take us to, or suggest that Grande Group Limited was ever mentioned in, evidence touching the day-to-day conduct of affairs between the Grande group management officials and Akai Australia in the period November 1999 to March 2000. 18 The "Management Authority" given to Grande Group Limited extended to all the business activities of Akai Holdings and its subsidiaries and affiliates throughout the world. There is evidence that Akai Holdings had operating subsidiaries in Europe, Australia, Japan, Hong Kong and China. Though Grande Group Limited is described in an annexure to the 2000 Directors' Report of Grande Holdings as having the "principal activities" of "Provision of management service", the 2000 Directors' Report of the company itself and of its subsidiaries describes it and its subsidiaries as follows: "The principal activity of the company is that of investment holding. There has been no significant change in the nature of this activity during the financial year. The principal activities of the subsidiary companies were: (a) Café operator; (b) Restaurant operator; (c) Bars, coffee house and cocktail lounge; and (d) Investment holding. However, the subsidiary companies did not carry out any trading activities during the financial year." 19 At his public examination in Hong Kong in the liquidation of Akai Australia, Mr Binney made clear that he acted upon the instructions of, and reported to, Mr Ho in connection with the affairs of Akai Australia. Mr Ho appointed him to the management group with responsibilities for the Akai operations and explained to him his responsibilities. There is clear evidence (a) of Mr Binney's reporting to Mr Ho there being monthly operational meetings with the group's management which both Mr Binney and Mr Ho attended, (b) of his discussions with Mr Ho in relation to particular transactions, and (c) of Mr Ho's direct and controlling involvement in decision making relating to the Silver Phoenix transaction and to proposals by a Mr Goldberg to acquire the Akai brand in Australia. As his Honour found, there is also documentary evidence that Mr Ho was effectively in charge of negotiations concerning the refinancing and restructuring of the whole Akai group, including Akai Australia. 20 There is ample evidence which, if accepted, would establish that the directors of Akai Australia acted as of course (though not necessarily without disquiet) upon the instructions from the senior management members of the Grande group.

(a) The shadow director claim 21 There is no presently relevant distinction between the definition of a director, which now appears in s 9 of the Corporations Act and the definition that formerly applied (until 12 March 2000) under s 60 of the Corporations Law. The term "director" includes a person who though not validly appointed as a director is nonetheless a person in accordance with whose instructions or wishes the directors of the company are accustomed to act. Such persons are colloquially referred to as shadow directors. In applying these provisions the following principles seem to be well settled: (i) a body corporate can be a shadow director: Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290; (ii) though the purpose of the definition is to identify those persons, other than professional advisers, who have real influence in, or indeed control of, the corporate affairs of a company, it is not necessary that such influence or control should be exercised over the whole field of its corporate activities: Secretary of State for Trade and Industry v Deverell [2001] Ch 340 at 354; and (iii) the influence or control exercised by a shadow director may be strategic in character, defining the context in which, or conditions upon which, the company operates, or else contriving the transactions of significance to the company: Australian Securities Commission v A S Nominees Ltd (1995) 133 ALR 1 at 52-53. 22 In a case such as the present where the locus of effective decision making for Akai Australia lay from at least 12 November 1999 beyond its own board of directors who did act on the instructions given them, the crucial question is where that locus reside - or loci reside if there is more than one outside entity or person in accordance whose instructions the board was accustomed to act. 23 Having concluded that there was a prima facie case that Grande Holdings was a shadow director of Akai Australia, Gyles J went on to say (at [19]) that: "I am not persuaded that the same conclusion should be reached in relation to Ho. It needs to be borne in mind that the question is not one of actual or ultimate control by Ho but, rather, concerns the propensity of the local executives to act upon the instructions and wishes of Ho. I cannot see a sufficient basis for raising an arguable case that Ho gave any direct instructions to any such executive, or that there is a proper basis upon which it could be concluded that those who did give instructions gave them in the name of Ho. Even if there were, there is nothing to indicate that Ho was acting as an individual rather than as the chief executive of Grande Holdings." 24 In this appeal, the submissions of Mr Ho are founded on the Agreement and can be put shortly. It is said that in light of the Agreement the only reasonable inference is that any of the officers of who gave instructions to Akai Australia executives did so as agents for Grande Group Limited pursuant to the authority that company had to tell those executives what to do. It is further said that to the extent that there is evidence that, at a higher group level, Mr Ho was effectively in charge of negotiations concerning the refinancing and restructuring of the whole Akai group, that, in itself, cannot make him a shadow director of each of the companies of that group. 25 The contention of Akai Australia and its liquidator is that there is a sufficiently arguable case that either or both of Mr Ho and Grande Holdings is, or are, a shadow director of Akai Australia. It is then said that while the evidence may not indicate whether, in giving instructions, Mr Ho was acting as an individual rather than as the Chief Executive Officer of Grande Holdings, it does indicate that he was acting in one or other or both of these capacities and that is all that is needed for the prima facie case standard in a proceeding such as this. As to the role of Grande Group Limited, it is contended that it was at best a nominee vehicle whose powers under the Agreement were unlikely to be exercised by it without the assistance of other Grande group affiliates. 26 In our view, at this stage of the matter there is only limited evidence explicitly pointing to Mr Ho's direct involvement in the affairs of Akai Australia as distinct from the affairs of the Akai group as such. There is, nonetheless, documentary evidence of Mr Ho's involvement in the Silver Phoenix transaction, and Mr Binney's public examination evidence as it related to (a) Mr Binney's relationship with Mr Ho; (b) the monthly management group meetings; (c) the Silver Phoenix transaction; and (d) Mr Ho's instructions concerning a particular proposal made by a Mr Goldberg. While such evidence is not suggestive of Mr Ho's having been involved in Akai Australia's day-to-day management, it lends support to the possible inference that his involvement in the company's affairs was of a strategic character in relation both to its affairs and to the company's participation and place in the rescue package. 27 For reasons we give below, we are satisfied that his Honour correctly concluded that there was a prima facie case that Grande Holdings was a shadow director. Unlike his Honour, though, we do not consider that the evidence is clearly inconsistent with Mr Ho having acted for some purposes or at all in an individual as opposed to an executive capacity. Given the state of the evidence, we do not consider that this claim could properly be rejected on the basis that there was nothing from which to infer that Mr Ho was acting as an individual rather than as the chief executive of Grande Holdings. To assume Mr Ho was acting throughout on behalf of Grande Holdings is to privilege one possible inference over another. 28 What the evidence does indicate in some degree is that Mr Ho and his senior management group members (which included Mr Binney) seemed less concerned with the precise dictates of corporate personality, legal structures and the legal relationship countenanced by the Agreement, than they were with effectuating their overall business purposes. Further there is evidence capable of suggesting Mr Ho both permitted his name to be associated prominently with the exercise of management powers consistent with implementing the Agreement (indeed he was a signatory of it for Grande Group), and ought reasonably to have been aware of the likelihood that his name would be used in relation to the communication to Akai Australia of at least some of the instructions given to Mr Binney (as in fact occurred). 29 It may be the case that only one - albeit a particularly significant one - of the actual instructions given the board of Akai Holdings emanated directly from Mr Ho as distinct from other Grande group officials. Nonetheless, the inference is open on the evidence that those group officials giving the instructions themselves both reported regularly to Mr Ho and were subject to his direction and that directions were given. Mr Binney acknowledged this openly of himself as he did that his responsibilities were defined by Mr Ho. In this state of affairs, and where the evidence establishes that the Akai Australia directors acted as if they were obliged to give effect to instructions from Grande group officials, the answer to the question "who were the shadow directors of Akai Australia?" could well result in an answer that acknowledged that there was a hierarchy of persons (legal and/or natural) who were persons in accordance with whose instructions the directors of Akai were accustomed to act. This is unsurprising given the respective hierarchical structures of the groups concerned and, in the case of the Grande group, of Mr Ho's position in that hierarchy. Mr Ho's indirect control of 74.9% of Grande Holding's shares may also be relevant in this regard. 30 Notwithstanding that Mr Ho was the chief executive of Grande Holdings and may in the event be found to have acted throughout in that capacity, there is in our view a sufficient degree of uncertainty about that question for it to be properly able to be said that a controversy exists between the parties relating to it, and that it warrants the use of the Court's processes to resolve it. 31 While we disagree with Gyles J's conclusion on the question whether there is an arguable case that Mr Ho was a shadow director, that disagreement is of no operative consequence as it does not affect the orders his Honour made.

(b) The officer claim 32 The Application in this proceeding claims that Mr Ho as a deemed officer contravened ss 180, 181 and 182 of the Corporations Law and/or the Corporations Act. The Statement of Claim in turn alleged that this was so from about 12 November 1999 to 22 March 2000; that Mr Ho was an officer as that term was defined in s 9 of the Corporations Law and thereafter in s 9 of the Corporations Act; that he contravened the above sections as pleaded; and that he was therefore liable pursuant to s 1317H to compensate Akai Australia. The s 9 definition, which was mistakenly assumed by the parties at the hearing before Gyles J to be applicable for the relevant period, in fact came into force on only 13 March 2000 as part of the Corporate Law Economic Reform Program Act 1999 (Cth): see Sch 3, Pt 3, cl 111 of that Act ("the CLERP Act"). It provided (insofar as presently relevant), as the Corporations Act s 9 now provides, that: "officer of a corporation means: (a) a director or secretary of the corporation; or (b) a person: (i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or (ii) who has the capacity to affect significantly the corporation's financial standing; or (iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors of the corporation)." 33 The same mistaken assumption was made that ss 180, 181 and 182 were the operative directors' and officers' duties provisions for the relevant period and that s 1317H provided the power to award compensation for contraventions. These provisions as well had their provenance in the CLERP Act. We would note that if parallel claims had been made against Mr Ho as an officer for the period 12 November 1999 to 12 March 2000, under the then applicable law, they would rely upon a somewhat differently worded s 9 definition; would, presumably, have pleaded contraventions of ss 232(2), (4) and (6); and would have claimed under s 1317HD for loss suffered. Such claims we emphasise are not before us. 34 We labour this matter for this reason. Insofar as concerns the period 13 March to 22 March 2000, the relevant Corporations Law provisions relied upon were carried over in substantially the same terms into the Corporations Act 2001 (Cth) on 15 July 2001. Mr Ho, and for that matter Grande Holdings, accept that any liability that did arise under the provisions operative in the above period subsisted until 14 July 2001 and, by virtue of s 1400 of the Corporations Act, resulted in a substituted liability being incurred under the corresponding provisions of the Corporations Act. 35 A quite different state of affairs would have resulted if the present Application had alleged contraventions of s 232 of the Corporations Law in the period 12 November 1999 to 12 March 2001. The substituted liability that Mr Ho and Grande Holdings would have incurred under the Corporations Act in respect of contraventions in that period would arise under s 1401 of the Corporations Act. As was said by Gummow, Hayne and Crennan JJ in Forge v Australian Securities and Investments Commission [2006] HCA 44 at [114]: "… the effect of s 1401 of the Corporations Act 2001 (Cth) was, by subs (1), to look at, rather than to pick up, the rights and liabilities, inchoate and contingent, as they existed on 14 July 2001, and to label them 'pre-commencement rights or liabilities'. By subs (2), s 1401 then incorporated into the new Corporations Act 2001 (Cth), for the limited purposes of subs (3) the text of the provisions of the State law which had given rise to the pre-existing rights and liabilities (in this case … s 232 …). Subsection (3) then created, under the provisions thus incorporated into the new Corporations Act 2001 (Cth), new and substituted rights and liabilities equivalent to the old 'as if that provision applied to the conduct or circumstances that gave rise to the pre-commencement right or liability'. Section 1401(3) thus provided for present and future consequences as to past acts." 36 It is unnecessary to consider further the claims that might have been made for the period prior to 13 March 2000. The motion in issue in this appeal is to set aside the Application and its service. It is not to amend an application that has been served so as to raise new claims that could have been made under O 8 r 1. 37 Given our earlier conclusion that there is an arguable case that Mr Ho was a shadow director, he would as such be an "officer" under s 9 of the Corporations Law (in both its pre and post 13 March 2000 forms). We would note also that our earlier conclusions would result in a finding that there was sufficient material in respect of pars (b)(iii) and probably (b)(ii) of the definition to support service of a claim outside Australia. For these reasons alone, there is independent reason for agreeing with Gyles J's conclusion that there was a prima facie case that Mr Ho was an officer of Akai Australia. 38 The actual reason his Honour gave for that conclusion was related to the decision of Santow J in Re HIH Insurance Ltd (in prov liq) and HIC Casualty and General Insurance Ltd (in prov liq); Australian Investments and Securities Commission v Adler (2002) 41 ACSR 72 which, Gyles J considered gave a very wide application to the CLERP Act definition of "officer". 39 His Honour described Adler's case and its relevance in the following terms (at [23]-[24]): "Adler was a director of HIH Insurance Limited (HIH) from 16 April 1999 to 26 February 2001. He joined the Investment Committee of HIH on 2 June 1999 and was a member of that Committee throughout 2000. HIH Casualty and General Insurance Co Limited (HIHC) was a wholly owned subsidiary of HIH. Adler had no office in that company. It was held that Adler was an officer of HIHC by virtue of his participation in decisions by the Board of HIH and the Investment Committee of HIH affecting the affairs of HIHC. It was found that he was one 'who makes or participates in making, decisions that affect the whole, or a substantial part, of the business of HIHC', namely investment decisions, and also, as a director of the parent HIH, had at the relevant times 'a capacity to affect significantly the corporation's (HIHC's) financial standing'. That reasoning is not directly applicable to the present circumstances as it was a case of parent and subsidiary. However, it can be argued that the effect of the Agreement is to substitute the board of Grande Group for the board of Akai Australia for all practical purposes and it can also be argued that the position of Ho viz a viz Grande Group is more significant than was the role of Adler in relation to HIHC. Whilst any such conclusion, and indeed the correctness of the reasoning in Australian Securities and Investments Commission v Adler, may be debateable, the issue is appropriate to be settled at trial rather than at this interlocutory stage. I thus conclude that there is a prima facie case that Ho was a deemed officer of Akai Australia at the relevant time, although not a deemed director. As appears from paragraph 1 of the Details of Claim, there are relevant differences in the effect of being a deemed officer as compared with a deemed director as some consequences of being a director are not suffered by officers (eg, there is no liability under s 588G). All of paragraph 1 of the Details of Claim is predicated upon the respondents being directors or officers." 40 As we understand Gyles J's reasoning and use of Adler, it is that in essence the board of Grande Group were for all practical purposes the board of Akai Australia and that Mr Ho, not barely because of his shareholding in the matter, but because of what he actually did in the matter viz-a-viz the Grande Group, was arguably a deemed officer of Akai for reasons akin to that given by Santow J in Adler. While this view sits, perhaps, uneasily with his Honour's shadow director conclusion in relation to Mr Ho, it is a view with which we concur. For the reasons we earlier gave, the evidence of Mr Ho's involvement in the giving of instructions to Akai Australia and in participating in decisions affecting the company is the more suggestive of a significant strategic involvement in the company's affairs and is open to the inference that he may have for some or all purposes have acted in his personal capacity. 41 As the claims made in the Application of contraventions of ss 180, 181 and 182 can only relate to the period from 13 March 2000 - the commencement date of the relevant CLERP Act provisions - many of the actions relied upon to make out those claims, having occurred prior to that date cannot be used to establish the contraventions alleged. We would refer to the Capetronics and Silver Phoenix transactions in this regard. This said, the claims made in respect of trading losses by Akai Australia which involve breaches of the above sections for which compensation is sought pursuant to s 1317H of the Corporations Act do extend to 22 March 2000. There is ample evidence to establish a prima facie case in relation to these contraventions as Gyles J observed (at [12]) in relation to the separate s 588G claim of insolvent trading. 42 We would add, that while the claims made require a prima facie case to be established that Mr Ho was an officer after 13 March 2000 and that the contraventions likewise occurred after that date, the evidence that could be relied upon to that end could, and in quite some degree did, pre-date 13 March. It provided the prior context that was capable of giving explanation and colour to what later occurred. 43 On the view we have taken, we consider there is no ground upon which to interfere with Gyles J's conclusion that there is a sufficiently arguable case that Mr Ho was an officer of Akai Australia as claimed in the Application.

(c) The Bray v F Hoffman-La Roche Ltd appeal 44 In light of the substantive conclusions at which we have arrived on the shadow director and officer claims, no Bray question arises. Nonetheless, we consider it appropriate briefly to express our views on its application on the assumption that we have erred in concluding a prima facie case for relief has been established against Mr Ho as a shadow director. 45 In Bray a majority of the Full Court of this Court held that the O 8 r 2(2)(c) requirement that there be a "prima facie case for the relief sought" only required that it be shown that such was the case on the basis of any one of the causes of action relied upon for the relief so sought: see [47]-[55] per Carr J; [176]-[191] per Branson J. The dissenting judge, Finkelstein J held that this r 2 requirement must be satisfied in respect of each cause of action raised in the proceeding. Nonetheless, his Honour accepted that the construction of the rule favoured by the majority was "open" albeit it was not the one he preferred. 46 The principle of comity generally applied by a Full Court of this Court to an earlier Full Court decision is well known and well accepted. It is that the earlier decision should be followed unless the later Court considers it is plainly wrong: see generally SZEEU v Minister for Immigration and Multicultural Affairs (2006) 150 FCR 214. 47 Mr Ho in his appeal contends that the majority's judgments in Bray ought not be followed. In our opinion this is not an appropriate case in which to consider this issue. We would note that in Bray Finkelstein J accepted the construction of r 2 favoured by the majority was "open" and we have concluded both that Mr Ho's appeal fails on other grounds and that the decision in Bray has no operative effect in the disposition of this appeal in any event. 48 Mr Ho has also appealed against the manner in which Gyles J applied Bray (accepting the correctness of that decision). Having concluded there was no prima facie case against him that, as a deemed director, he contravened s 588G (insolvent trading), but having found that there was a prima facie case that, as an officer, he had contravened ss 180, 181 and 182 (officers duties) and hence there was a prima facie case for the relief sought under s 1317H requiring him to compensate Akai Australia for damage resulting from the contravention, his Honour considered whether the relief sought under s 588M for the s 588G contravention was in substance the same and could be regarded as the same as that under s 1317H. Having concluded that it was, and could, Gyles J applied the principle in Bray so saving the s 588G deemed director claim for compensation under s 588J from being set aside. 49 We would note in passing that while the Application and the Statement of Claim seek compensation for the s 588G contravention under s 588J of the Corporations Act, counsel for Mr Ho in both written and oral submissions has treated the claim as one under s 588M. As counsel for Akai Australia and its liquidator has not confirmed that the claim is under s 588M and as the Application sought to be set aside refers to s 588J, we will deal with the Application as it stands although we would note that there is no operative distinction between the two provisions insofar as concerns the particular ground of appeal here. 50 It is clear from s 588P that the right to recover compensation from a director under s 588J does not derogate from any right to recover from a director under s 1317H for breach of duty of office. As in the present Application, the same general conduct can give rise to several possible claims. 51 However, when one turns to the relief sought in the present compensation claims under s 588J and s 1317H an issue of equivalence does arise. The compensatory relief sought under s 588J is premised upon a debt having been incurred by a company and, because of insolvency, the creditor to whom the debt is owed has suffered loss or damage in relation to the debt: s 588J(1). The compensation payable to the company under the section is an amount equal to "that loss or damage". In the present matter the compensation sought in the Statement of Claim (the "Insolvency Debts" shortfall) is the difference between the aggregate amount of unpaid debts on admitted claims at liquidation and the aggregate of the dividends paid to these creditors, leaving the claimed shortfall of $4,566,121.54. 52 The relief sought in the s 1317H claim in respect of contraventions of ss 180, 181 and 182 arise from allowing Akai Australia to trade beyond 31 December 1999. That claim is for compensation for damage suffered by Akai Australia resulting from the contraventions. In the Statement of Claim the compensation so sought is for trading losses ($556,000) and additional interest expenses on borrowings. 53 Counsel for Mr Ho contends that the relief sought in respect of each of the claims is not relevantly the same in that the losses for which compensation is payable in each claim are generically different, the creditors' losses on the debts incurred in the s 588G claim not being losses that could be recovered as losses of Akai Australia in s 1317H claim. 54 As Branson J indicated in Bray (at [182]-[184]): "Order 4, r 3 of the Rules, which is concerned with what must be specified in an applications provides: (1) An application must specify: (a) the relief claimed by the applicant; and (b) if the relief depends on a provision of an Act - the Act and the provision. (2) Where the claim for relief includes a claim for the determination or direction of the Court on any question, the application shall state the question. … Significantly, O 4, r 3 does not require that each cause of action upon which the applicant relies be identified in the application; only statutory causes of action are required to be identified. For this reason, it seems to me that the reference in O 4, r 3 to 'the relief claimed by the applicant' must be a reference to the remedy sought by the applicant in the proceeding (see Pascoe v Richards (1881) 50 LJ Ch 337). In my view, at least where the relevant originating process is an application, the inference is strong that the expression 'the relief sought by the party in the proceeding' in O 8, r 2(2)(c) is intended to carry the same meaning as the expression 'the relief claimed by the applicant' in O 4, r 3(1)(a). As is mentioned above, that meaning is the remedy sought by the applicant in the proceeding rather than the relief sought pursuant to each cause of action to be relied upon." 55 There is no doubt that, at a certain level of generality, there is a commonality between the s 588J and the s 1317H claims. Both for O 8 r 1(c) purposes can be described as: "founded on a breach, wherever occurring, of an Act, and is brought in respect of, or for the recovery of, damage suffered wholly or partly in the Commonwealth." But when one turns, as Branson J indicated, to the actual relief sought in the Application, it is clear that the relief sought "depends on [several] provisions of an Act" - i.e. s 588J and s 1317H respectively. This in turn suggests that the relief sought in each instance is not "the same relief", for O 8 r 2(2)(c) purposes, notwithstanding that in both compensation is being sought. The distinctiveness of the two forms of relief may also be said to be apparent in the differences in the meaning of the term "compensation" as used in each section. In s 588J it is not used in its usual sense as recompense for the party compensated's own loss. Under this provision the loss suffered is that of the creditors in relation to the debt incurred, but the compensation is paid to the company: see Ford's Principles of Corporations Law, 20.150. Under s 1317H, in contrast the award of "compensation" to the company is for damage suffered by it resulting from the contravention, but the damage suffered under this provision includes "profits made by any person resulting from the contravention". 56 Nonetheless, it is the case that in the context of insolvent trading, the conduct of directors that needs to be demonstrated to make out a s 588G(2) contravention reasonably closely approximates to that required to establish a breach of director's duties under ss 180, 181 and 182 of the Corporations Act. This is recognised in the provisions of s 588P of the Corporations Act. It provides: "588P Sections 588J, 588K and 588M: (a) have effect in addition to, and not in derogation of, any rule of law about the duty or liability of a person because of the person's office or employment in relation to a company; and (b) do not prevent proceedings from being instituted in respect of a breach of such a duty or in respect of such a liability." However, according to Bray, it is not the similarity in elements of the cause of action that is brought into question for O 8 r 2(2)(c) purposes. Rather it is similarity in the relief sought. 57 While it might be said that, in insolvent trading cases, the difference between the two types of claim for relief reflects in substance merely a choice as to two different measures of compensation, we consider such is not the case. The two species of relief serve different purposes; have different statutorily prescribed measures; and, importantly, are required to be specified individually in an application, including an application served out of the jurisdiction. In these circumstances relief sought under s 1317H is not the same relief as that sought under s 588J (or for that matter s 588M). In addition, s 1317H is a general provision. But s 588J (or s 588M) is a specific provision creating a remedy in a particular situation. The ordinary principle of statutory construction is that in cases in which ss 588J or 588M provide a remedy, s 1317H, being a general provision, does not apply: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 276. 58 Accordingly, we have doubts as to the correctness of his Honour's conclusion that the principle in Bray's case would save the shadow director claim against Mr Ho from being struck out. However, because of the different conclusion we have reached in relation to that claim to that of Gyles J, the views we have expressed above on the application of Bray have no actual consequence. 59 We will order that Mr Ho's appeal be dismissed.

(ii) The shadow director/officer claims against Grande Holdings 60 The appeals in relation to Gyles J's holdings that there were prima facie cases that Grande Holdings was both a shadow director and an officer of Akai Australia, can be dealt with together as they are similar in substance. 61 Apart from the factual material referred to in relation to Mr Ho's appeals, it is necessary to refer only to one additional evidentiary matter. As Gyles J found, there was no evidence of any express instruction in the name of Grande Holdings to any Australian executive in relation to the impugned transactions. 62 The conclusion reached by Gyles J on the shadow director question was that (at [18]-[19]): "A prima facie case has certainly been established that the directors and officers of Akai Australia regarded themselves as bound to follow the instructions of Grande Group during the relevant period. The question is whether there is a prima facie case that they were accustomed to act in accordance with the instructions or wishes of Ho and Grande Holdings. The mere fact that Grande Group was a subsidiary of Grande Holdings and that Grande Holdings was accustomed to act in accordance with the instructions or wishes of Ho would not be sufficient to establish such a case (Standard Chartered Bank (above) at 324B and 327G). It seems to me, however, that a possible view of the facts at a prima facie level is that the directors and officers of Akai Australia were prepared to, and did, accept instruction from those whom they regarded as speaking for the Grande group of companies as a whole and, in particular, from those speaking with the authority of the ultimate holding company, Grande Holdings, and its effective controller, Ho. Binney does not appear to have been a director or officer of Grande Group and the communications, generally speaking, do not purport to emanate from that particular company. I have already referred to the evidence of involvement of officers acting on behalf of Grande Holdings. In my opinion, there is a prima facie case that Grande Holdings was a shadow director of Akai Australia." 63 This conclusion is challenged on the ground that his Honour appears to have been relying upon his earlier conclusion (at [15]) that there was material to support the contention that the various Grande group officials particularised in par 26 of the Statement of Claim as having given instructions to Akai Australia were acting either as officers of Grande Holdings or upon the instructions of Grande Holdings in relation to the affairs of Akai Australia. These conclusions, it is said, lacked evidentiary support. 64 As to the former of these conclusions - from whom the Akai Australia directors were prepared to accept instructions - there is evidence to suggest that Akai Australia's managing director, Mr Suzuki, considered he was responsible to an officer of Grande Holdings (i.e. Mr Binney) and that Grande Holdings was Akai Australia's "new strategic management partner": Liquidators Questionnaire for Directors and Officers, Q11 and Q35. There is equally evidence of instructions being received from officers not purporting to be, and not being, officers of Grande Group Limited and of which the Akai Australia directors had reason to know. Likewise there is evidence that some of those who gave instructions directly (e.g. Mr Yeun) or via another officer (Mr Ho) spoke with the authority of Grande Holdings. 65 As to the second conclusion, the evidence as to some of the instructions given (e.g. in relation to the Silver Phoenix transaction), as to the position or accountability of some of the officers giving instructions (e.g. Mr Yeun and Mr Binney) and as to the monthly senior management group meetings provides a sufficient evidentiary basis for Gyles J's conclusion. 66 We consider that his Honour committed no error either in arriving at his conclusion concerning Akai Holdings shadow director claim, or in his consequential conclusion that there was a prima facie case that Grande Holdings was an "officer". 67 We will order that the appeal by Grande Holdings be dismissed.

(iii) The Holding company claims against Grande Group Limited and Grande Holdings 68 The claims made against these companies was that each, for the purposes of the Corporations Law and Corporations Act, was the holding company of Akai Australia. In Grande Group Limited's case, this was because, (i) it controlled the composition of Akai Australia's board and/or (ii) it had overall control of the votes cast at Akai's general meetings, by virtue of the Agreement and the control it could exercise directly and through Akai Electric Company Limited (the holder of the one issued share in Akai Australia and a subsidiary of Akai Holdings). As to Grande Holdings, it was alleged it was able to exercise like control over Akai Australia's board and general meetings by virtue of its shareholding in, and control, of Grande Group Limited and by virtue of the Agreement. 69 The purpose behind each of these claims was to attract those provisions of the Corporations Act - ss 588V and 588W - which render a holding company liable in defined circumstances to pay compensation to a subsidiary company's liquidator for the subsidiary's insolvent trading. 70 His Honour rejected each claim observing (at [27]) that: "The Agreement is not capable of any reasonable construction which would give Grande Group any power of control of the composition of the Board or any power to cast or control the casting of votes at a general meeting of Akai Australia. Any suggestion that this could be achieved through Akai Electric is speculation not supported by any reasonable evidentiary base … The case against Grande Holdings cannot rise above that against Grande Group." 71 The appeal of Akai Australia and its liquidator challenges both his Honour's construction of the Agreement and the view his Honour took of control being exercised through Akai Electric, the only shareholder in Akai Australia. 72 As to the first of these, not only do we agree with Gyles J's construction of the Agreement, we also consider that the Agreement, on its proper construction, would preclude Grande Group Limited from using Akai Electric's shareholding in the ways alleged. 73 By way of background we should note four matters. First, s 46 of the Corporations Act for presently relevant purposes defines a body corporate to be a subsidiary of another body corporate if, and only if, that other body (a) controls the composition of the first's board; or (b) is in a position to cast, or control the casting of, more than one half of the maximum number of votes that might be cast at a general meeting of the first body. Secondly, Akai Electric, as Akai Australia's sole shareholder, is its holding company. Thirdly, if it is the case that Grande Group Limited can control the casting of Akai Electric's share in Akai Australia, it also will be Akai Australia's holding company, under s 46. Fourthly, we have not been provided with Akai Australia's constitution, nor have we been informed as to how its directors may be appointed. 74 The very fact that the Agreement was described as a "Management Agreement" is itself revealing. The authority given to Grande Group Limited to manage the business of each and all of the Akai group companies in such manner as it considered appropriate was widely cast. The businesses of those companies meant all of their business activities "including without limitation all financial, operational, legal corporate, administrative and other matters" involving the companies. Akai Australia, we note in passing, relies on the inclusion of the word "corporate" in this definition in support of its contentions on this appeal. The Agreement was terminable on thirty days written notice. 75 There is nothing in the Agreement itself that would convey an intent that it had purposes beyond the management as such of the companies' businesses. It did not address issues of ownership, internal constitutional arrangements or the possible sale or liquidation of any of the companies. In its terms its concern was with managing the companies. When regard is had to the context of the Agreement, that management, as will be seen, was to be with a view to the possible rescue of the Akai group. 76 The factual material providing the context for the Agreement is sparse indeed. What appears to be the case from the evidence and from what the Court has been told during the course of submissions is that the Agreement was part of an arrangement between the Grande and Akai groups, the object of which was to examine and to consider the implementation of a rescue of the Akai group. That group was in dire financial straits and was, as counsel put it, "in need of a white knight". The Agreement was a preliminary holding step in that process. The Agreement and the authority given by it did not, in our view, extend beyond its declared purpose of managing the actual businesses of the companies concerned. Like Gyles J, we do not consider that the Agreement was intended to, or did, give Grande Group Limited the power to control the composition of the board of Akai Australia or to control its general meeting. It neither addressed nor mandated interference in the internal constitutional arrangements of the individual Akai companies as such notwithstanding the contractual transfer of the power of management from the board that it effected. Equally, we do not consider that it gave Grande Group Limited control over the powers Akai Electric had as Akai Australia's sole shareholder. 77 Notwithstanding that the Agreement defines "Business of Akai" as meaning: "all business activities of Akai, including without limitation all financial, operational, legal, corporate, administrative and other matters involving Akai", we do not consider that all of what could be described as corporate matters relating to Akai Australia were to be regarded as "business activities" of the company. We doubt that a reasonable person, in the position of the parties at the time, would have understood the term "corporate" in this broader sense. Moreover, Akai Holdings held only 56% of the shares in Akai Electric which was a company listed on three Japanese stock exchanges. Having regard not only to the text of the Agreement, but also to its function and purpose in the Grande group-Akai group business relationship that was being considered at the time: cf Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; see also Peden and Carter, "Taking Stock: the High Court and Contract Construction" (2005) 21 JCL 172 at 180; a reasonable person in the position of either of the parties would not have intended that the authority given extended beyond the management of the companies' affairs or that it otherwise mandated interference in, or alteration of, the internal constitutional arrangements of the companies. The Agreement was not aimed at controlling the companies' owners. It was aimed at managing their businesses. For this reason we do not consider that, on its proper construction, it was intended to give Grande Group Limited control of the share and its vote that Akai Electric had in Akai Australia. The Agreement was an essentially interim and holding measure. It is unsurprising that it did not address the composition of the board or the powers of the companies' owners whether in general meeting or otherwise. Those may be described as "corporate matters". But they were not ones falling within the scope of the Agreement notwithstanding the apparently unlimited terms of the definition of the "Business of Akai". 78 We are not satisfied that there is a prima facie case that either of Grande Group Limited or Grande Holdings was a holding company of Akai Australia. This, though, raises the question whether for the purposes of Bray's case, the relief sought against the two companies under s 588W of the Corporations Act is substantially similar to that sought against the same two companies under s 588J (or s 588M). Both deal with the liability of a third party, in the one case a director, in the other a holding company, for insolvent trading. The compensation payable under each provision is identical in terms. As we have earlier indicated, his Honour was satisfied that the relief sought against the two companies under s 588J and s 1317H was, for Bray purposes, the same. However, he took a different view in relation to the relief taken under s 588W, considering it to be sufficiently distinct from that sought under s 588J and s 1317H. We have explained why we have doubts as to the correctness of his Honour's view in relation to the equivalence of the relief in s 588J and s 1317H. However, unlike his Honour, we consider that there is a case for saying that the relief sought in the circumstances under s 588W is relevantly the same as that sought under s 588J. Though the causes of action differ, the relief in one case being against the companies as shadow directors, in the other as holding companies, there is an argument for saying that the relief sought is the same. For this reason we consider that the Bray principle might be applicable to the s 588W claim, notwithstanding we have found there to be no prima facie case in relation to it. However, the right to sue under s 588W is vested in the liquidator, while the right under s 588J is given to the applicant for a civil penalty order. 79 This raises directly the question whether, in its discretion, the Court should nonetheless not permit the s 588W claim to be proceeded with, i.e. in effect setting aside the service of it. In his reasons Gyles J indicated that even if he was wrong in the view he took of the application of Bray to the s 588W claim, he would have imposed terms precluding reliance on this claim. His Honour did not provide reasons for that conclusion. Having regard to his terse comments about the prima facie case question, one can readily enough infer that he considered the claims untenable. 80 We are of a like view for the reasons we have given. We do not consider that it should be open to Akai Australia and its liquidator to proceed with a claim which we consider to be untenable, notwithstanding that a prima facie case has been established for the ultimate relief sought via the s 588J claim. We should in substance affirm the order of Gyles J setting aside the Application and service as they relate to the holding company/insolvent trading claims against the two companies, although our reasons for doing so differ somewhat from those of his Honour. To that end we will order that the "holding company" appeal be dismissed.

(iv) Questions of leave and Orders 81 We have, as noted at the outset, heard both the two leave applications and the substantive appeals concurrently. It is appropriate that leave be granted in each matter - if, indeed, leave is necessary for the appeal by Akai Australia and its liquidator (a question on which we express no opinion). We have reached this conclusion notwithstanding that the appeals relate to what could be said to be matters of practice and procedure. We consider that the issues raised were proper ones for ventilation in an appeal, the moreso because the outcome of the appeal could have affected the need for Mr Ho and Grande Holdings to participate at all in the proceedings. 82 We will order that in the case of each of the motions leave to appeal be given but that each appeal be dismissed. We will invite written submissions on costs. I certify that the preceding eighty-two (82) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Weinberg and Rares.

Associate: Dated: 13 November 2006 Counsel for the Appellants in NSD 923 of 2006/Respondents in NSD 1184 of 2006: Mr J R J Lockhart with Mr L Byrne

Solicitor for the Appellants in NSD 923 of 2006/Respondents in NSD 1184 of 2006: Freehills

Counsel for the Respondents in NSD 923 of 2006/Appellants in NSD 1184 of 2006: Mr J Kelly SC with Mr R Mills

Solicitor for the Respondents in NSD 923 of 2006/Appellants in NSD 1184 of 2006: DMAW Lawyers

Date of Hearing: 17 August 2006

Date of Judgment: 13 November 2006