(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.