Australian Securities and Investments Commission v King & Anor

[2019] HCATrans 195

[2019] HCATrans 195

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B29 of 2019

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Appellant

and

MICHAEL CHRISTODOULOU KING

First Respondent

ACN101634146 PTY LTD (IN LIQUIDATION)

Second Respondent

KIEFEL CJ
GAGELER J
KEANE J
NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 9 OCTOBER 2019, AT 10.04 AM

Copyright in the High Court of Australia

MR S.P. DONAGHUE, QC, Solicitor‑General of the Commonwealth of Australia:   If it please your Honours, I appear with MR M.T. BRADY, QC and MR O.M. CIOLEK for the appellant.  (instructed by Corrs Chambers Westgarth)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MS B.J. KABEL, for the first respondent King.  (instructed by Tucker & Cowen Solicitors)

KIEFEL CJ:   I think the parties would have been notified that we would deal with the applications for special leave at the outset.

MR DONAGHUE:   Yes, your Honour.  In relation to ASIC’s application which is made by the summons filed on 28 June 2019 and supported by an affidavit of Frances Williams sworn on 28 June 2019 which I read if I might, we seek special leave to appeal against a judgment given by the Queensland Court of Appeal after the grant of special leave in this matter and after the notice of appeal was filed, but that application does not change the ambit of the matters, the legal point raised, on the appeal at all, it is simply consequential in the event that the Court were to accept that the Court of Appeal erred in the way that we had indicated.  Then, the consequential variation that it made to the penalty order and the costs orders should, in our submission, fall away.  So, all that we would be seeking ‑ ‑ ‑

KIEFEL CJ:   They would revert to the trial judge’s ‑ ‑ ‑

MR DONAGHUE:   To revert to the trial judge’s orders.  So, it is just – this would have been – if everything had have been dealt with together then the consequence that would have followed, in our submission, from allowing the appeal would have been to set aside those orders but the temporal separation means that we could not include them at the time that the appeal was lodged.  So, I do not seek to say anything in support of the application other than what I have just said and there will be no difference in our argument.

KIEFEL CJ:   Mr Jackson.

MR JACKSON:   Your Honours, may I just say something about the structure of the proceedings before going to the argument directly on this issue?  As is apparent from the appellant’s written submissions, paragraph 2, the sole issue in the ASIC appeal is said to be whether the Court of Appeal erred in saying it was necessary for ASIC to prove that King acted in an office of MFSIM in the sense of a recognised position with rights and duties attached to it, that contention based on paragraph (b)(ii) of the definition of officer of a corporation.

Now, as well as being the issue on which the appeal is based, it is that on which ‑ and our learned friend said ‑ special leave was sought and obtained and it is the only issue raised in the existing and proposed notice of appeal.  You can see that in volume 3 of the core book at page 1006, and in the supplementary core book at page 51.  But it is apparent from the reasons of the Court of Appeal, and if I may say so, with respect, more apparent since the subsequent judgment, that the Court of Appeal decided the case adversely to ASIC on two bases, not just the one the subject of the notice of appeal.

One basis was that covered by the application for leave to appeal.  The other, however, was that in any event, ASIC had not established, in relation to MFSIM, that Mr King fell within paragraph (b)(ii) on the basis which it had contended and, indeed, now contends and it was held that it was not.  Could I go to the passages of the Court of Appeal’s reasons, which show that the course adopted by it was as I have just submitted.

If I could go, your Honours, to the supplementary core appeal book, at page 17, and to the reasons given in the decision given after the grant of special leave and I want to refer particularly to paragraph [52] where it was said:

Mr King enjoyed success in relation to the meaning of “officer” in s 9 of the Act.  There were two reasons for that outcome.  The first was that it was necessary for ASIC to prove that [he] acted in an office or position within [that company], and there was no finding to that effect by the primary judge.  The second was that on this Court’s review of the evidence, we were not persuaded that ASIC proved that Mr King had the capacity to significantly affect the financial standing of [the company], which was the basis of ASIC’s case that he was an officer.

Your Honours will note the two footnote references to paragraphs [249] and [288] of the earlier judgment.  Your Honours will see that the first footnote takes one back to volume 2 of the core book and to page 553 of that and your Honours will see this is a passage relied on by our learned friends and it is apparent enough that what is being dealt with there is the first basis, the basis upon which special leave has been granted. 

Your Honours, when one goes to paragraph [288] of the same judgment in the other passage referred to which is at page 563, you will see that there it is also apparent that the Court of Appeal has decided the case on two distinct bases.  Could I take your Honours first to paragraph [286] and you will see it is said of the nine examples offered by ASIC’s submissions, it can be seen that many of them did not – and your Honours will see the remainder of it.  Then one goes to paragraph [287]:

But the question is whether ASIC proved that Mr King was an officer upon the basis which ASIC had pleaded –

KIEFEL CJ:   Mr Jackson, these matters were taken up on the application for special leave on liability and the Court I think commented that they were inextricably linked with the Court of Appeal’s view of “office”, what was involved in the definition of “office”.

MR JACKSON:   Well, the Court commented on the possibility of there being a link, but what has happened of course, your Honour, is that if one looks at paragraph [286] to [288] there is a reference to there being two bases.  If one looks to the Court of Appeal’s second set of reasons, it is apparent that they indicate there that there were two quite distinct bases and any lack of ‑ ‑ ‑

KIEFEL CJ:   Of course, the first judgment will speak for itself without a reflection of the Court of Appeal on its own judgment.

MR JACKSON:   Your Honour, it is an explanation of what it was doing.

KIEFEL CJ:   Mr Jackson, I can understand how this might play out in the appeal on liability, but what is the point you are making about the application for special leave to bring in the consequential penalty orders in relation to that?

MR JACKSON:   Well, what I am saying about it, your Honour, is really this.  At the time when the application for special leave was granted, it appears not to have been, in our submission, with respect, quite as apparent that there were two separate bases, only one of which is attacked.  And so one has a situation then where you have a judgment that is the subject of an appeal at the moment, but if the appeal succeeds, the other basis is not challenged in the appeal.

KIEFEL CJ:   This is part of your foundation for an argument that special leave should be revoked.

MR JACKSON:   Indeed, your Honour, yes.

KIEFEL CJ:   That does not say anything, does it, about if the appellant is correct in the path it is taking whether or not it should have special leave to add on the question about penalties so that consequential orders can be made.  I mean, for revocation, you have to argue liability and put the argument as fully as you have in your written submissions.

MR JACKSON:   Your Honour, with respect, the stage at which the matter arises is one where there had been a judgment of the Court of Appeal, then you have a situation where special leave is sought and obtained in relation to a judgment which has not yet fully been worked out, if I may say so, with respect.  I am not suggesting there is a constitutional question, but in relation ‑ ‑ ‑

KIEFEL CJ:   Just so I am clear though, Mr Jackson, are you saying you not only respond to the application for special leave and object to it, but you also are seeking at this point revocation of the special leave which has been granted?

MR JACKSON:   Yes, your Honour, yes.  Yes, that is the point.  We say it is a case where special leave has been granted, and granted in relation to one of two bases of a judgment below, and the other basis has not been – is just left to lie, as it were, with respect.

KIEFEL CJ:   Yes, I follow.

MR JACKSON:   So, your Honour, I think that ‑ ‑ ‑

KIEFEL CJ:   I follow.

MR JACKSON:   Could I just say, your Honours, if I might go on this point to our written submissions.  I wanted to say, in essence, what we have put at the conclusion of the written submissions on this issue; essentially, what one is talking about is $30,000 plus some costs.  One is talking about a situation where there is no attack, no written submission, about the second basis on which the matter was decided and if the Court decided the issue that is raised by our learned friends one still has to deal with the other basis on which the matter was decided.  Your Honours, that is all I wanted to say ‑ ‑ ‑

KIEFEL CJ:   Thank you.  Yes, Mr Solicitor.

MR DONAGHUE:   Your Honours, if special leave is revoked, then obviously – on the main appeal, then obviously you would not end up making any orders ‑ ‑ ‑

KIEFEL CJ:   Yes, quite.

MR DONAGHUE:   Sorry, in terms of our application for special leave, nothing said by my friend really goes to that question.  It goes to the question of whether the appeal should continue at all.  If your Honours wish to hear from me now on that application I can address your Honours on it now.  I was proposing to address it in the course of my main submissions but I am in your Honours’ hands.

KIEFEL CJ:   Yes, I think the course we will take is we will hear from you in relation to that.

MR DONAGHUE:   Your Honours, the starting point is, as your Honour the Chief Justice put to Mr Jackson, that the primary basis upon which the grant of special leave in this matter was opposed was this exact point.  It was said by reference to paragraphs [287] and [288] that there was a separate basis for decision such that even if our appeal ground was good it could not result in the decision being set aside and that matter having been fully agitated both in writing and at the leave hearing special leave was granted.  So, in my submission, nothing has changed between now and then that would warrant a revisiting of that decision.

GORDON J:   Is the answer to be found in [287]?

MR DONAGHUE:   Partly, yes, but can I give a fuller answer than that.  In our submission, before one gets to [287] if I might, your Honours should start at page 549 of the core appeal book in paragraph [238] where you will see that the way that – which is at the top of page 549 ‑ the argument that Mr King had advanced was that he lacked the relevant:

capacity to affect . . . financial standing within . . . 9(b)(ii) because he did not act in an office or position within that company.

So the legal argument he was making was that he had to have the relevant capacity by reason of an office within the company.  The Court then looks at the legal basis for that which is the subject matter of our appeal and, we say, makes an error, but then when one gets to [249] having dealt with the law, the Court says at [249] on page 553:

it was necessary for ASIC to prove that Mr King acted in an “office” . . . The primary judge made no finding as to whether ASIC had proved that fact.  The findings which his Honour made did not, of themselves, support his conclusion . . . The issue for this Court is whether the evidence proved that he was an officer, according to what we have concluded was the correct interpretation of that term.

So, on the basis of the discussion of the law on the pages that I have just passed over which are the focus of our appeal, the Court said, looking at that view of the law, was it proved on the evidence?  What you then see in the pages that follow leading up to paragraph [287] is a discussion of the evidence tested against that legal understanding – the legal understanding identified in the paragraphs preceding [249] – ultimately leading to the conclusion that one sees at [287] and [288]. 

So, in [287], the question, in the singular, not two separate questions, is whether ASIC proved that Mr King was an officer on the basis pleaded, namely, that he had the capacity to affect financial standing.  Further, as we have concluded – and this, I think, is your Honour Justice Gordon’s point – ASIC had to prove that Mr King had that capacity by acting in an office of MFSIM.  That is a reference back to [249] and the legal conclusion, and ASIC, it was said, failed to do that.  In our submission, when one goes – and I probably do not need to take your Honours through all of them, but I have passed over the facts but if I could just give you some examples – if you go back, for example, to [266]  ‑ ‑ ‑

GORDON J:   Placed in the position that they go through each of the 10 examples that ASIC relied upon and assess that against the question about whether or not Mr King is in an office?

MR DONAGHUE:   Precisely, in an office in the way that their Honours have framed the question.

GORDON J:   Correct.

MR DONAGHUE:   So, many of those examples are dismissed on the basis that he had capacity to affect financial standing but not by reason of an office as their Honours understood it.  So, reading the judgment fairly, the evidentiary evaluation is integrally connected to the legal understanding of the test and that is what the Court accepted when this same point was raised at the special leave hearing.  So, in our submission, there is not any basis to revoke the application for special leave.

For the sake of completeness, in light of the fact that our friend took your Honours to it, if you could go back to the supplementary appeal book – and this is the subsequent judgment ‑ your Honours will see on page 7 of that book, in paragraph [2] of the court’s reasons, the court summarising what it did:

This Court found that Mr King was not an “officer” of MFSIM.  It reached a different conclusion to the primary judge on the legal question of the meaning of “officer” in s 9 of the Act.  As a result, we concluded that Mr King should not have been held to have contravened the duties prescribed by s 601FD.  However, no findings about his conduct and being knowingly concerned in MFSIM’s contraventions were disturbed.

So, their Honours are saying, we disagreed on the law, we set aside his Honour on that basis, we did not disturb the factual findings.  That, in our submission, is not consistent with the idea that there are two completely separate bases for the decision that was made.

And, paragraph [52], to which our friend took your Honours, does not suggest differently because while it refers to there being two reasons, the first of the reasons identified there is the absence of an office within MFSIM – that is the subject matter of our appeal – that is the very thing we are here to argue about.  And, the second point identified was reviewing the evidence against that understanding of the law that ASIC had not made good its case, and you see that particularly from the last sentence:

Any capacity which he had to affect its financial standing was one which derived from his position as CEO with the MFS Group . . . rather than acting in an office or position within MFSIM.

So the error that we identify affects what are said to be both of the bases for discussion, for the findings against us and, in our submission, your Honours, there is not any force in the proposition that special leave should be revoked.  If the Court pleases.

KIEFEL CJ:   Mr Jackson, the Court is not persuaded that there is a basis for revocation of the grant of special leave, and special leave in relation to the question of penalty is granted.  Then I think it is your application for special leave to cross‑appeal in relation to the findings of contravention, Mr Jackson?

MR JACKSON:   Yes.  Your Honour, in relation to that, the point that we seek to make, to put it shortly, is that there appear to be – and I hope your Honours will forgive me if I use a similar expression – two possible bases for the way in which the decision was made arriving at the question of penalty.  In relation to that, your Honour, one basis was that the entitlement to there being a penalty under 1317H was on the basis that the actions were approved and authorised by Mr King.  The second basis, which appears to be the basis on which the Court of Appeal decided, was that he encouraged the taking of those actions.

Now, the contention that we seek to make is this, that section 1317H requires that there be conduct by the person themself which causes the loss.  In relation to the first basis, in our submission, the approach taken by the Court of Appeal either did not decide, or did not deal with, the first basis – that is, approved and authorised – in a way which would lead to there being a maintenance of the penalty order against him.  And, your Honour, it is an important point.  I appreciate we are out of time on the question.

KIEFEL CJ:   What is the explanation for an extension?

MR JACKSON:   Your Honour, no explanation appears in the material.

KIEFEL CJ:   No.

MR JACKSON:   All I can say is, your Honour, it is a very substantial case in which, before that decision could be taken, one had to see what the position was in relation to penalty and other matters.  Your Honour, I cannot say anything further in relation ‑ ‑ ‑

KIEFEL CJ:   Thank you, Mr Jackson.  Mr Solicitor.

MR DONAGHUE:   Your Honours, I do not seek to say anything on the extension of time other than to say the matter was substantially out of time, the delay is not explained by the penalty judgment because there is nothing in issue in the penalty judgment that affects the compensation order that was not the subject of the penalty judgment at all.

The only ground that is said now to underlie, or the point sought to be raised by the cross‑appeal, relates to the compensation order.  So that relates solely to a finding in the liability judgment and there is no explanation for the delay.  It is a matter for the Court as to whether it requires one for that non‑compliance.

KIEFEL CJ:   There was correspondence between the parties so the respondent was put on notice that it was required to file its application for special leave.

MR DONAGHUE:   Yes, there was, and we did not accept that it was appropriate to wait, that if that finding was to be challenged, it should be challenged.  So they knew, they chose not to file, and they were well out of time, and on that basis alone, in our submission, your Honours should refuse the extension, but there is nothing more I need to say about that.

In terms of the substance of the matter, our friends do not even try to situate the special leave application as raising a point of law of general importance.  It is solely a challenge to a particular factual finding made by the Supreme Court, reviewed by the Court of Appeal and therefore found by all four members of the Queensland courts that have looked at it to be correct because the Court of Appeal unanimously dismissed the challenge. 

In our submission, there is no reason why this Court should be engaging with a review of factual findings in those circumstances.  That might be thought to be particularly true in circumstances where the issue as it has now been identified is about the payment of a very large compensation order ‑ $177 million – in circumstances where the Court of Appeal said in paragraph [1] of the penalty judgment I just went to:

There is no suggestion by Mr King that the investors will actually be compensated.

And his position at the trial was that no one would be able to pay the compensation orders. 

So your Honours are being asked out of time to give special leave on a factual question about the correctness of an order that, even if it is upheld, will not be complied with and that, we submit, is not a useful deployment of the resources of the Court.

In terms of the substance of the legal points, there are two points I need to seek to make briefly.  The first is, if your Honours could turn to the proposed notice of cross‑appeal which is exhibit DGD‑6 to the affidavit of Daniel Gregory Arthur Davey sworn on 18 July – it is the last exhibit to that affidavit ‑ your Honours will see that the one ground of appeal attacks the finding that Mr King approved and authorised the misuse of the funds and refers to paragraph 163.

Then you will see the orders that are sought in consequence of that:  orders 2 and 7 of the Court of Appeal dated 8 December – I think that should be 18 December – be set aside; orders 1 to 3 made on 18 June be set aside; orders 6, 7 and 8 and 29 to 32 of the orders made by the primary judge be set aside.

If your Honours go to volume 1 of the core appeal book, you will find the orders made by the primary judge at page 438, and bearing in mind that it is said that order 6, 7, 8 and 29 to 32 should be set aside, orders 6, 7 and 8 which were varied and remade in various ways by the Court of Appeal but I do not need to take – are the declarations of contravention.

So, it is said all of the declarations of contravention in relation to the Fortress payment should be set aside.  And then going to 29 to 32, the disqualification order banning – this is on page 449 – banning Mr King for 20 years should be set aside, the entirety of the pecuniary penalty should be set aside, the compensation order should be set aside and the costs order should be set aside.  There is no correlation at all between the argument that is said to be being raised on this application and the relief that is said to follow from it.  If the complaint is about the compensation order, at most, there should be a challenge to order 31 made and none of the other orders that are said to follow can properly be in play.

Finally, your Honours, the proposition that the conclusion that was reached ‑ and this requires me to take your Honours to the paragraph that is identified as involved in the error in the proposed notice of cross‑appeal at paragraph [163] ‑ if your Honours go to that paragraph which starts on page 531, you will see it appears as part of the discussion of ground 11 which is a ground which you see at the first sentence of [158] concerns an alleged error in finding that Mr King approved and authorised the money – the use of the money.  There is then a discussion of the basis upon which the trial judge made that finding at paragraphs [160] through to [163], and you will see at [162], for example, there is reference to:

frequent interactions between Mr King and Mr White, including Mr King’s admissions about the nature of his role as the overall boss . . . Mr King had participated in decisions affecting the whole or a substantial part of MFSIM’s business and had the capacity to affect significantly –

There is a quote then from the primary judge:

CEO of the MFS Group, he had overall responsibility for MFSIM.

I am reading the first quoted passage in [162]:

Mr White reported to Mr King and would take instructions from him.  Mr King would talk to Mr White at least daily –

Then in the next quoted passage, still in [162], the second sentence:

Mr King was unable to recall any instance where Mr White refused to take a direction from him with respect to the funds management side –

That is what leads up to the conclusion at [163]:

the primary judge thereby explained the basis for his finding . . . that Mr King not only knew that money drawn down from the RBS was to be used in this way, but “approved and authorised” that use.

Then, at the top of the next page, they reject the argument that that depended on the officer finding and said:

it was to be inferred that Mr White would not have caused PIF’s money to be used in this way without the imprimatur of Mr King.  There was no error in that reasoning.

So, the factual findings made by the judge as to the basis for “authorised and approved” were withheld there.  Then, though, in [164] through to [169], their Honours say even if we were wrong about that we would still have found that Mr King was knowingly concerned in the contravention because you did not need to prove “authorised and approved” to support that finding, it was enough to show a lesser level of involvement.  They explain that through [164] through to [169] where you get the conclusion – clearly, at [169] Mr King clearly:

was involved or implicated in the contraventions.  He negotiated the variation to the agreement with Fortress . . . He was in frequent contact with others within MFS, most importantly Mr White, about the progress of Mr White’s efforts to procure finance . . . His effusive reaction to the advice from Mr White . . . demonstrated his encouragement of (to say nothing of any direction to) Mr White and others to obtain the RBS funds –

GORDON J:   Is not the short point, though, here that what the Court of Appeal is saying is that the trial judge’s analysis of the elements necessary to prove knowingly concerned were too high and, in a sense, what they say is, listen, forget about authorised and approved, that is not the question.  You are asking yourself the wrong question.

MR DONAGHUE:   Exactly.  So we think he was right ‑ asking the wrong question, and the stricter question, we think he was right, but actually he did not need to go that far.

GORDON J:   It is the higher question that has been the subject of the proposed cross‑appeal.

MR DONAGHUE:   Exactly.  So the lower question, which the court thought was the right question, will not be challenged and will stand.  But as we understand it, what Mr King is saying, is that even if he was knowingly concerned on that second correct basis, you somehow could not have got a compensation order on that basis because it was not found that Mr King’s involvement was causative in the requisite sense.

That, we submit, is to adopt an analysis completely contrary to the Court of Appeal’s own view, and this is the last point I seek to make.  If your Honours go back to the Court of Appeal supplementary reasons in the – sorry, penalty reasons in the supplementary appeal book – you see what the Court said there at paragraph [1]:

Mr King was knowingly concerned in contraventions –

And then reading from about halfway down that paragraph:

Mr King, the CEO of MFS Ltd, of which MFSIM was a subsidiary, encouraged this to happen.  He encouraged Mr White and others to obtain the Royal Bank of Scotland (“RBS”) funds for the purpose of the Fortress payment.  The loss caused to investors by this conduct –

that is, the encouraging conduct:

was huge.  Mr King was ordered to pay compensation to PIF in the amount of $177,017,084.  There is no suggestion by Mr King that the investors will actually be compensated.

If your Honours look at that footnote 2:

The loss caused . . . was huge.

The reference is to the ‑ ‑ ‑

GORDON J:   No, it is the passage before.  It is the “encouraged” conduct, takes you back to [169]. 

MR DONAGHUE:   Yes.  You are quite right, I missed the footnote.  It takes you back to [169], not back to [163].  So the Court of Appeal’s causation findings did not link to the finding that is sought to be challenged by the prosecutor.  So for all of those reasons, in our submission, your Honours should not grant special leave to appeal.

I am reminded I have passed over paragraph [17] in the Court of Appeal’s reasons, which reinforce the – the second supplementary reasons, which reinforce that same point and again concluding with a finding that his conduct resulted in huge losses to investors.

So, in our submission, it is out of time, it does not raise a point of general importance, it challenges one of two findings which was not the critical finding on causation, and the relief sought does not correlate to the grounds.  For all of those reasons, your Honours should not give special leave.

KIEFEL CJ:   Mr Jackson, anything in reply?

MR JACKSON:   Your Honours, a couple of matters.  What one sees in the judgment of the primary judge is that he adopted the more difficult test – if I can put it that way – authorised, et cetera.  One sees that the Court of Appeal then adopted a different and, in a sense, lower test to maintain the approach taken by the primary judge.  If your Honours look at the written submissions dealing with this aspect of the matter and, in particular,

paragraph [62], you will see, in about the fourth line, a list of the various paragraphs of the judgment of the Court of Appeal which deal with the question of penalty and all on the basis, your Honours, that there was an encouragement to obtain the funds for the purpose of the Fortress payment.

Your Honours, it comes down then to the question, whether that finding was one which was causally linked to the damage which was suffered.  And, if one goes to paragraph [168] of the Court of Appeal’s reasons in volume 2, at page 533, you see the Court of Appeal saying:

Consequently, Mr King might have been knowingly concerned in MFSIM’s contravention by some conduct on his part although it was not causative . . . it was unnecessary for ASIC to prove that the contravention occurred because Mr King approved or authorised it. 

But, the case that was made – and the case that was being made on behalf of ASIC – was one that he had authorised and approved it.  Your Honours can see the case set out at paragraph [230] in volume 2, at page 545, and it commences at the bottom of that page.  Your Honours will see that was the nature of the case that was – they were the particulars – that if one actually goes to the statement of claim, which your Honours will find in the volume called “Appellants Further Materials” and, in particular, to paragraph 56 of that, what your Honours will see ‑ I am sorry, it is a long paragraph ‑ in particular, at page 46, you will see a paragraph numbered 56(r) which, having referred to all the matters above, makes the allegation that “he approved and authorised” et cetera.   Your Honours, those are the submissions ‑ ‑ ‑

KIEFEL CJ:   The first respondent, the application for special leave to cross‑appeal requires an extension of time.  The application is substantially out of time and no explanation is provided.  No question of principle is sought to be raised.  The extension of time within which to seek special leave is refused.  Do you seek costs, Mr Solicitor?

MR DONAGHUE:   I do, your Honour.

KIEFEL CJ:   I do not think you can say anything.

MR JACKSON:   Nothing I can say about that.

KIEFEL CJ:   The extension of time is refused, with costs.  Yes, Mr Solicitor.

MR DONAGHUE:   Thank you, your Honour.  Your Honours, I was proposing to start with the facts.  I have already touched on some of what I would take your Honours to, so I will do this fairly quickly if I may and principally by reference to the opening paragraphs of the Court of Appeal’s judgment that your Honours will see on pages 497 and 498.  The focus of the appeal, as your Honours will appreciate, is on some transactions that occurred in November 2007 within the MFS group of companies.  MFS Ltd was the parent company of that group.  It was a company listed on the Australian Stock Exchange, and by 2007 the group comprised a large number of companies, some of which were involved in funds management and financial services.

One of those companies was the second respondent, MFSIM, and it was the responsible entity for the Premium Income Fund or the PIF, which was a registered management investment scheme which in October 2007 had $787 million in funds under management.  A few months before the critical events for the purposes of this appeal, MFSIM as responsible entity for the PIF entered into a $200 million loan facility with the Royal Bank of Scotland.  About a month before that occurred a different company within the group, MFS Castle Ltd, entered into a short‑term loan facility with Fortress Credit Corporation for the provision of a $250 million short‑term loan facility.  That facility was unrelated to the PIF.

In paragraph [6] of the Court of Appeal’s judgment you will see that that loan facility was guaranteed by the parent company in the group, MFS Ltd, and by another subsidiary within the group.  The whole of the $250 million from Fortress was drawn down on 1 June 2007 and it had to be repaid by 1 August – sorry, by 31 August ‑ but that repayment was not possible and there was a renegotiation such that the Fortress loan facility was to be repaid by 30 November 2007. 

You then see in paragraph [7] that by mid to late November 2007 MFS Ltd was in difficulty.  It had been intending to sell part of the companies in the group in order to raise funds which could have been used to repay the Fortress loan facility, but that sale had not been able to go through and you will see at the end of paragraph [7] MFS Ltd and the other company that was the guarantor:

did not have enough cash to repay the $250 million –

to Fortress by 30 November.  That then led to the events that are at the centre of the appeal.  Mr King, who was the CEO of the parent company, MFS Ltd, negotiated with Fortress to defer the total repayment.  The effect of that negotiation was that there was an agreement to repay by 30 November, which was only a couple of days after this negotiation was taking place, $100 million of the 250 together with an extension fee of $3 million such that MFS had to find $103 million within a matter of days so as to pay the money that was owed in order to get the extension of the Fortress loan facility.

What then happened, as you see at paragraph [9], was fairly simple.  MFSIM and senior individuals used the loan facility that MFSIM had negotiated to draw down $150 million under that loan facility and, rather than use that facility for the purposes of PIF, it paid PIF’s money to pay the debts of another company in the group for which PIF was neither actually nor contingently liable.

Both the primary judge and the Court of Appeal found that the payment of that money, $130 million paid by MFSIM to another company in the group, and then the use of $103 million of the $130 million to meet the Fortress payment, involved a contravention of MFSIM’s duties as the responsible entity for the fund, and contravened section 601FC of the Act, and also 208(1) which concerns financial benefits to related parties, and there is not any issue on the appeal as to the correctness of those findings.  The issue concerns Mr King. 

Mr King was found both to have been knowingly concerned in the contravention by the responsible entity that I have just identified, on the two bases that your Honours have already seen - the 163 and the 169 bases - and he was also found to be directly liable by reason of having contravened his obligations as an officer of MFSIM under 601FD of the Corporations Act, and it is that contravention finding of the direct obligation on him as an officer, that is, in issue on the appeal, the primary judge having found that contravention, and the Court of Appeal having overturned it, on the footing that Mr King was not an officer.

I have already taken the Court to a number of the passages that show you how Mr King was involved in the contravention by MFSIM.  I have not taken your Honours to paragraphs [182] and [183] at page 536 of the core appeal book.  So at [182], in the middle of that page, the Court of Appeal records:

Mr King was the CEO of MFS Ltd and the most senior officer within the MFS Group. 

He was in fact one of its founders.  He was a solicitor, and he had been involved in founding the group:

His role as CEO of MFS meant that he was effectively the CEO of the entire group. 

At [183], he had been a director of MFSIM until February 2007, so until earlier in the same year that the contraventions occurred.  But even once he ceased to be a director, he retained what he himself described as overall responsibility for the company, and that is extracted in some evidence he gave to ASIC in a section 19 examination.  At [184] Mr White, who was actually the executive director of MFSIM, reported to Mr King and would take instructions from him:

they would talk at least daily “in some way, shape or form”.

I have taken your Honours already to [163] and the paragraphs preceding that, so I will not go back to them, but those facts led the Court of Appeal to agree with the primary judge’s finding that Mr King’s role was such that he had the capacity to, and did, approve and authorise the Fortress payment, but also that he contravened by being knowingly concerned by encouraging the contraventions. 

As I have already mentioned, the primary judge upheld both the knowing concern and direct officer contraventions against Mr King.  The Court of Appeal overturned the officer findings and the essential basis for that – I will deal with this in more detail later in my submissions but just to give your Honours the conclusion, you will see first at 553 - and I have read this to your Honours already - the last sentence:

The issue for this Court is whether the evidence proved that he was an officer, according to what we have concluded was the correct interpretation of the term.

You see that correct interpretation at the end of [246].  So it is another thing their Honours said – to say “as in our view the High Court did not say” in Shafron:

that persons within para (b) need not be persons who act in some office of the corporation, not in the sense of an office named in the Act, but in the sense of “a recognised position with rights and duties attached to it”.

It was because their Honours concluded that in order to fall within paragraph (b) you had to act in an office being a recognised position with rights or duties attached that their Honours held that Mr King was not an officer.  He had the capacity but their Honours said he had that in – he had the capacity to effect the financial standing of the company, but he had it because of his position in the parent, not because he was an officer of MFSIM, and that is the conclusion that we challenge.

NETTLE J:   On the Court of Appeal’s conclusion, would he have fallen within (b)(iii)?

MR DONAGHUE:   Quite probably, and also in (b)(i).  He was found, in fact, by the primary judge to fall within (b)(i) as well, but ASIC had not pleaded (b)(i) and so that was not determinative, though I think - the difficulty is that it is not clear whether the Court of Appeal would have said that that same requirement applies to (b)(iii).  If it did, that would have been a very radical holding indeed.

GORDON J:   Is that not what you rely upon as one reason why the construction is wrong?

MR DONAGHUE:   Yes, we certainly suggest that if it is applying it to all of the paragraphs it is very obviously wrong.  If it is treating (b)(iii) differently to (b)(i) and (b)(ii), it is wrong as well, because all of those paragraphs are about extending the reach of the officer obligations beyond people who hold the offices identified in the other paragraphs.

NETTLE J:   So these paragraphs are not mutually exclusive; they overlap?

MR DONAGHUE:   They heavily overlap and so, while it is the case that ASIC did not plead (b)(i), facts that show that a person is involved in participating in decisions in the way that (b)(i) identifies might equally show that you have the capacity to affect the financial standing of the company, so that there is a heavy degree of overlap.

Now, I do not need to take your Honours to it at this point, but the Court is concerned with the meaning of “officer” because the obligations imposed under 601FD of the Corporations Act are imposed upon officers and that naturally takes one to the definition of “officer” in the Corporations Act which your Honours will find in volume A at tab 3.

This is I think the first appeal being conducted since the practice notes changed, so I do not know whether your Honours can find what I am referring your Honours to by tab numbers or whether I need to give you page numbers.  I can give page numbers if anybody needs them within the joint appeal book.

KIEFEL CJ:   I think we are actually referring from pamphlet copies.

MR DONAGHUE:   So if your Honours could turn to section 9, the definition of “officer”, which should start at the bottom of page 59 of the print.  In our submission, what was called for in this case was a close analysis of this definition. 

What seems to have happened in the Court of Appeal – and I will develop this later – is that, rather than engage in that close analysis, the court applied a gloss derived from authorities that were concerned with the undefined meaning of “officer”, particularly going back to Western Counties, Lord Justice Lindley’s judgment, which is the source of that phrase “a recognised position with rights and duties attached to it”, and have overlaid that learning from the ordinary meaning, or what was identified as the ordinary meaning of the word onto a statutory definition which in its terms is exhaustive – an officer of a corporation means – and which in paragraph (b) in particular extends, and was avowedly intended to extend, the meaning of that word so as to extend the classes of persons who are subject to the statutory duties that the Act propose.

So when one looks at the paragraph – at the definition, there is a notable contrast between paragraph (b) on the one hand and all of the other paragraphs.  All of the other paragraphs refer to persons by reference to an office of a particular kind to which the legislation attaches particular duties or functions.  That is obviously so in relation to directors and secretaries, but similarly receivers, administrators, liquidators, et cetera.  In all of those cases the office holder is identified as an officer of the corporation.  Those words “of the corporation” are used in each one of the subparagraphs.

GORDON J:   So is it fair to say that (a) and (c) to (g) are dealing with office holders and (b) is dealing with people who otherwise are not office holders?

MR DONAGHUE:   Are not office holders, but otherwise have the identified capacities or perform the identified roles.  That is the very way that the Court has treated it in Shafron which I am about to come to.  But it is particularly clear – and as your Honour Justice Nettle raised it with me – if one looks at (b)(iii) which is the shadow director paragraph with a very long legislative history, it has never to my knowledge been suggested that in order to be a shadow director you have to hold an office within the company or in the sense of a recognised position with rights or duties attached to it.

The concern is with people who do not have that level of capacity but who are nevertheless able to exercise influence over the people who do.  There is, in our submission, no reason to gloss paragraph (ii) in the way that the Court of Appeal did while recognising under (iii) that it is perfectly possible to be an officer within the meaning of this definition without holding an office of the kind identified in the other paragraphs.

Can I ask your Honours to go to Shafron which is in volume C, tab 18 ‑ Shafron v ASIC (2012) 247 CLR 465. This was a case – it was the companion case to Hellicar and it concerned the James Hardie issues.  Mr Shafron was both the company secretary and the general counsel of James Hardie and he was identified – I will not take you to it – but in paragraph 28, he was the second or third most senior executive within James Hardie.  Because he was the secretary he was, obviously, within paragraph (a) of the definition of an officer.  So, it could not be – and was not suggested – that he was not an officer within that part of the definition.

But, what Mr Shafron sought to argue was that one could subdivide up his different positions and roles so that even though he was a secretary and, therefore, an officer, that imposed duties on him only when he was performing the tasks of an officer.  And, when he was acting as a general counsel, then you needed to bring him separately within the definition of “officer” in order to impose duties on him.  And, it was in the context of that argument that the Court looked at paragraph (b) of the definition – particularly focusing on (b)(i) – whether or not Mr Shafron participated in the making of decisions that affect the whole or a substantial part of the business of the company.

While that is what Mr Shafron argued, the Court did not accept that argument.  So, you will see at paragraph 5, in the reasons of the plurality, which is six member is the Court, that in the section under paragraphs (a) and (b), these reasons will demonstrate that, regardless of whether any other element of the definition applied to Mr Shafron, 180 of the Corporations Act applied to him because he was the company secretary and it was not then necessary to ask what responsibilities he had or to divide up the capacities in which his responsibilities were undertaken.  And, similarly, in paragraph 7:

At no stage of the litigation has it been disputed that, as company secretary . . . Mr Shafron was an officer . . . within para (a) –

But he made the submission I have just paraphrased at paragraphs 8 and 9.  Because that submission was rejected, the Court at paragraph 21, said that:

it is not strictly necessary to consider the arguments –

about whether or not he fell within paragraph (b)(i) and so, in that sense, what I am about to take your Honours to is obiter.  But, nevertheless, the Court said it was well to say something about that question.  It made then a number of points at paragraph 23:

Several points should be made about the proper construction and application of para (b)(i) of the definition –

The relevant point is the third point which appears at paragraph 25 and it really picks up the observation your Honour Justice Gordon made to me a moment ago:

each of the three classes of persons described in para (b) . . . is evidently different from (and a wider class than) the persons identified in the other paragraphs . . . Persons identified in the other paragraphs of the definition all hold a named office in or in relation to the company; those identified in para (b) do not.  Persons identified in the other paragraphs all hold offices for which the legislation prescribes certain duties and functions; those identified in para (b) do not.  Persons identified in the other paragraphs of the definition are bound by the legislation to make certain decisions and do certain acts for or on behalf of the corporation; those identified in para (b) are identified by what they do (subpara (i)), what capacity they have (subpara (ii)) or what influence on the directors they have had and continue to have (subpara (iii)).  There being these differences between para (b) of the definition and the other paragraphs –

Paragraph (b), generally:

it is not to be supposed that persons falling within para (b)(i) must be in substantially the same position as directors –

Now, that, in our submission, is emphasising what appears powerfully from the textual comparison between paragraph (b) on the one hand and the other paragraphs on the other and it points, in our submission, strongly against reading into paragraph (b) a requirement that the person needs to hold an office of the corporation as an additional requirement to what the text requires, having the relevant capacity, doing the relevant thing.

Now, while your Honours have Shafron, it is convenient to make a few other short points.  At the end of paragraph 26, the Court identifies that the notion of participation, here talking about (b)(ii), involves:

a question of fact and degree –

to determine the significance of the role “played by the person in question” and we embrace that, and we say that the same is true as to paragraph (b)(ii).  Then in the next paragraph, the Court accepted a submission that Mr Shafron had made, that:

little assistance is to be had from considering decisions about the application of other statutory expressions –

to a person concerned and there is a footnote to Bracht.  In our submission, the simple explanation for that statement is having just identified in the previous sentence that the question is one of fact and degree, looking at how a different court has applied a different definition to a different set of facts is not going to be that helpful in answering the statutory question.

All their Honours are saying is decisions about the application of the provision do not necessarily help you that much.  Their Honours are not saying that any reference to Bracht, the case in footnote (29), is of no assistance.  Now, the reason I am belabouring that is that when I come to the legislative history Bracht is, in our submission, an important step in explaining how the legislation came to take its present form.

GORDON J:   Some take the view, at least Justice Jacobs did in Citigroup, that it was a codification of what Justice Ormiston said in Bracht that explains (b)(i) and (b)(ii).

MR DONAGHUE:   That will be my submission.

GORDON J:   I see. 

MR DONAGHUE:   So that we will be using Bracht as a step‑in, in that exercise of legislative history.  Our friends in writing criticise the reference to Bracht by saying it is contrary to what is said in paragraph 27.  And because I am here now, I am answering that submission in advance, rather than needing to take your Honours back to it. 

The final point I need to make from Shafron is that it is also put against us by Mr King in writing that because when one looks at the provisions that actually impose duties on officers, like 601FD, and one sees in those provisions references to:

a reasonable person . . . in the officer’s position –

Or the person:

not make improper use of their position as an officer –

that it follows from that reference to “position” that you need to have an office.  That, or a version of that argument was also made in Shafron and your Honours see that if you go back to paragraphs 18 and 19.  So Shafron was concerned with 180 of the Corporations Act, and you see that quoted in paragraph 18.

Paragraph (b) of 180 included, as part of the statutory requirements, that one had regard to what a reasonable person would do if they:

occupied the office held by, and had the same responsibilities within the corporation as, the director or officer –

The argument was, well, you just needed to focus upon the responsibilities that the person had at a statutory level, statutory responsibilities, by reason of their role as a secretary and not look more generally.  So if your Honours look at the end of 18, the last few lines of paragraph 18, the Court said no, the responsibilities in question refer to:

whatever responsibilities the officer concerned had within the corporation, regardless of how or why –

they came to have them.  Mr Shafron said in paragraph 18, in answer to that, well, that reads out the words:

occupied the office held –

makes them otiose, and the Court rejects that as well, saying, from about four lines down:

His or her position is not adequately described unless regard is had both to the office held and to the responsibilities that the person has.

So their Honours seem to be distinguishing between, or acknowledging the possibility that an officer might have responsibilities not by reason just of the office held – they are not the same thing, in other words.  And then, most importantly:

Mr Shafron’s submissions ignored the evident difficulty in defining, for the purpose of limiting the conduct considered, the content of “the office held” where a person is an officer by virtue of para (b)(i), (ii) or (iii) ‑

So, again the Court is recognising those paragraphs are different and you do not read them down or confine them by reference to and some notion of “office held” derived from elsewhere within the Act.  So, we rely upon Shafron as recognising the textual difference between paragraph (b) and the other paragraphs and as acknowledging both in paragraphs 19 and 25 specifically that, unlike the other paragraphs, there is not a requirement to hold an office with identified rights, duties and responsibilities attached.

GORDON J:   Before you leave Shafron, can I ask you about 31? So, in 27 that you took us to ‑ and I know it is dealing with participation ‑ one method of assessment of that question which is set out at 27 is to say, listen, one looks to see the decision is of significance, so one looks for the quality of the decision, but when you come down to 31, the Court seems to suggest there that the conclusion that there is participation depends not only upon what the person did but identifying the relationship between the actions and the decision. It is in about the ‑ ‑ ‑

MR DONAGHUE:   Yes.  Indeed, although it might not be a bright line between what they did and the relationship because their Honours ‑ ‑ ‑

GORDON J:   No, there is not – it is not suggesting a bright line, I do not think; I think it is suggesting the opposite, it is suggesting one has to undertake some sort of assessment of the relationship between the two in order to determine the significance of it.

MR DONAGHUE:   Indeed, that is I think the question of fact and degree to which their Honours were referring in 27.  So, one does have to engage in quite an evaluative process in terms of looking at what you did and what you would be expected to do and here it is – Mr Shafron was arguing that because he was not a member of the Board he could not have participated in the decision and the Court was saying, no, you were a guiding mind behind the proposals that were being put to the Board that the Board was then engaging with, they were only engaging responsibly in relation to what you were doing and that, on this set of facts, constitutes participation.

KEANE J:   Are they not concerned with this question about external advisers, external consultants?  The point they are making in 31 is that the resolution of the question of whether someone who does not hold an office but may be within (b) is acting in a way that is different from the way in which a mere consultant or external adviser acts and the question whether they are or are not in terms of the nature of the participation they are engaged in is a question of fact.

MR DONAGHUE:   I fully accept that, your Honours, and your Honours will have seen we embrace that.  We situate it textually in the requirement that the person be an officer of the corporation, so that requirement of connection is a question of fact and calls for that very evaluative exercise of fact and degree that we are talking about so one can deal with the banker or the financier who might perhaps in some sets of facts if they are actually really driving what the company is doing fall within the definition but in many cases would not.

Your Honours, the next point we make - and I can make it fairly shortly - arises in relation to the question of whether the statutory context helps and, in our submission, it does help in this respect, that there are a number of parts of the Corporations Act lend weight to the idea that when the Parliament was concerned with people, in effect, acting in an office or holding an office, it said so expressly.  Now, it does that in the various other paragraphs of the definition of “officer”, but if your Honours go to the definition of “director” which is on page 40 of the print, still in section 9, you see a familiar definition with very long origins, but relevantly directing attention to paragraph (b)(i), a person can be a director not only if they are appointed to the position but also unless the contrary intention appears, if they have not been validly appointed, if they act in the position of the director.  Now, that is a very conventional de facto officer notion.

Of course, if you are a director, you are an officer as well because paragraph (a) of the definition of “officer” refers to directors.  So a person can be a director and therefore an officer simply by reason of acting in the position.  Similarly, under (b)(ii) they can be a director and therefore an officer by being a shadow director, which is what (b)(ii) is referring to.  In neither case does the person actually need to hold the office, but the line of authorities that the Court of Appeal below picked up including, in particular, Lord Justice Lindley in Western Counties and Justice Mason in Drysdale are dealing with the de facto officer concept.  They are saying you can still be a director even though you have not ever been validly appointed or even though you were validly appointed but your appointment has now expired. 

The reason you can be a de facto director is that, even though you have not been validly appointed, you are acting in the office.  So the whole nature of the de facto officer question of course does require there to be an office, because the whole question is, are you occupying that office even though you do not hold it.  It is not surprising in that context that you get language like are you acting in a recognised position with rights and duties attached to it, because that is what the de facto officer question is about.

Where the Court went wrong, in our submission, was drawing on those authorities which have operation in relation to, for example, paragraph (b) of the definition of “director”, and importing them into – and a limitation on paragraph (b) which is directed to something quite different, which is to directed to expanding the definition of “officer” to include management, and that is what I am going to seek to develop by reference to the legislative history very shortly.

KIEFEL CJ:   That might be a convenient time.

MR DONAGHUE:   Yes, your Honour.

AT 11.15 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.30 AM:

KIEFEL CJ:   Yes, Mr Solicitor.

MR DONAGHUE:  Your Honours, I have reached paragraph 6(b) of our outline.  I have one last point of statutory context to make before coming to the legislative history, where the steps are set out in paragraph 7.

The last point of statutory context concerns section 206A of the Corporations Act, which is on page 259 of the relevant version of the print.  To foreshadow where I am going to go in terms of the legislative history, our proposition will be that paragraphs (b)(i) and (b)(ii) are a codification of the decision in Bracht, which was concerned with the meaning of the word “manage” a corporation.

What one sees in paragraph 206A is Parliament dealing with the question of management of a corporation by disqualified persons.  If your Honours look at subsection (1)(a), (b) and (c), the parallel with the three subparagraphs in paragraph (b) of the definition of “officer” is obvious.  So (b)(i) and subparagraph (a) are the same, (b)(ii) and subparagraph (b) are the same, and the substance of paragraph (c) is the same as (b)(iii), the shadow directors paragraph.  So Parliament is dealing with the same groups of people and is saying that if you are one of those groups of people, you commit an offence if you are disqualified from managing a corporation; you commit an offence if you are one of those three groups of people.

Now, the point that we make about that is that it has been recognised in the Federal Court, and I will not take your Honours to it, but the case is ASIC v Reid, which is cited in our submissions.  Justice Lander at paragraphs [141] and [142] accepted that that paragraph was codifying Bracht, so the same - it is supportive of that nexus. 

But our main point is this, that it could not be right that one could avoid the operation of 206A by being involved in the management of a corporation, but making sure that one did not do it from a recognised position within the company to which rights and duties attach.  That is, if one applied the gloss that the Court of Appeal applied to the definition of paragraph (b)(ii), in the context of 206A, the consequence would be that people could readily avoid the prohibition that one finds there by exercising the relevant influence from outside the company rather than from an office within it. 

GAGELER J:   Mr Solicitor, if you take that person, how do you apply section 180(1) to that person?

MR DONAGHUE:   Section 180(1) focuses first on the powers relevantly that the person actually has and then poses a hypothetical comparator by reference to the reasonable person, which I accept in (b) refers to or assumes an office held.  But that is the exact argument that was put in Shafron addressed in 18 and 19 where it was said because of those words, in that same section actually, “office held”, one had to confine back the meaning of (b)(i) relevantly, and the Court said in answer to that, you cannot do that because of the evident difficulty in identifying the office when one comes within these provisions by reason of those three expansive subparagraphs within (b). 

So, I accept that there is a slightly awkward inquiry in that one is identifying the reasonable person - the hypothetical reasonable person occupying the office held presumably bringing in virtually all of the characteristics of the incumbent in those circumstances, but overlaying an objective test on to a person in that particular person’s set of positions, otherwise it is difficult to see how the provision would work.

GORDON J:   Is that not why I took you to 31 in Shafron?  Is that not what the Court is doing in 31?  It is saying this is the inquiry.  It might be strange but one looks to the actions, one looks to the relationship, one looks to the conduct and the effect of the conduct.

MR DONAGHUE:   Yes, I thought I agreed with your Honour and, yes, if I was ambiguous.

KEANE J:   Also, so far as 180(1)(b) is concerned, occupied - Drysdale establishes that exercising the powers is occupying; does not have to be holding.

MR DONAGHUE:   Indeed, occupying brings in the de facto.  It was put against us that our recognition of some limits on the operation of paragraph (b) by reference to a requirement that there be some connection of affiliation or belonging amounts to the same thing as the Court of Appeal did.  We, as I said to your Honour Justice Keane in our primary submission, situate that in the word “of” ‑ officer of the corporation.

It does not, in our submission, produce the same outcome, as is powerfully illustrated by the case of the CEO of the holding company.  It is put against us that because the CEO of the holding company holds a position in a different company, they cannot be, as I understand it, an officer within (b), or that one somehow needs to distinguish between their influence as the CEO of the holding company, which is presumably sought to be excluded from (b)(i), with some other capacity that they might have which could bring in the definition.  That, we submit, is totally artificial and unworkable and the proper approach is the approach taken in Adler, that your Honour Justice Keane mentioned, in paragraph 74 where the CEO of the holding company was accepted as falling within the (b)(ii) definition.

While we have accepted, as Shafron accepted, that it is a question of fact and degree, in the CEO of the holding company case you just answer that question of effect and degree quite easily, because the influence is evident and the affiliation is evident.

NETTLE J:   Is the affiliation to the directors or to the subject company?

MR DONAGHUE:  To the subject company.

NETTLE J:   And the affiliation is comprised of what?  What are the criteria that a judge would be looking for in a case if that were the test?

MR DONAGHUE:   Well, it is difficult to be prescriptive for I think the reason identified in paragraph 31 of Shafron, that one has to look at all of the circumstances and because of the width of these definitions there are a wide range of facts that could be thrown up.

NETTLE J:   Well, you are looking pretty good with the CEO of the holding company, I understand, but then how far does it go?

MR DONAGHUE:   One might say in the case of an ordinary company that has – sorry, a bank that has loaned money to the company on standard commercial terms and conditions that to foreclose on that circumstance, there is no affiliation.  If, on the other hand, the bank is working closely with the board to support the company while it tries to trade out of difficulty on the basis that all of the business decisions that are being made will be made in circumstances that closely involve the bank in deciding whether or not steps should or should not be taken, then the affiliation is looking a lot closer.  At some point there would be a line that would need to be drawn and it turns, as Shafron indicates, on all of the facts. 

NETTLE J:   Is it sufficient to say that it is de facto exercising management powers within the subject company, or is that too prescriptive?

MR DONAGHUE:   If one could go that far, in my submission, you would definitely be in the definition.  In my submission, the section does not require - if exercising management powers means day‑to‑day management powers, it does not go so far.  It would be enough for particular decisions to be made that had a major impact on the management of the business going forward, and Mr King’s example here on the fact is enough for that.  ASIC did not need to show that he was engaged in the day‑to‑day management of MFSIM.  He was in a position where, in a matter of days, he could produce an outcome where $103 million of the subsidiary – or the investors’ money in the PIF was applied to the assets of another company in his group.  That is the very kind of thing, in our submission, that (b)(ii) is directed to.

GORDON J:   In the nine or 10 examples that follow on that are considered by the trial judge in very short shrift, and then at some length in the way you and I have discussed, what role do they play in the assessment of this question in (b)(ii)?

MR DONAGHUE:   What role do those examples play?  Well, the way that they were deployed by ASIC was to illustrate the capacity that King had to exercise influence over White, and therefore the subsidiary company, to show the factual foundation for the answer to that question of degree, and your Honour will have seen in these examples they include ‑ ‑ ‑

GORDON J:   The reason why I ask is because you are there referring to the events of 30 November without reference to those other examples, and I was just asking whether or not they still form part of your case.

MR DONAGHUE:   They do.  Sorry, I was not intending to limit myself in that way.  But the examples that were given include, for example, if you turn to [262] on pages 556 to 557 – this is the second of the nine examples.  Mr King by email in October, so about a month and a half earlier - emailing people in the group under the heading “Decision” writing “In future we will only” make investments of particular kinds.  It was formalised by White, forwarding it to other officers, saying “This needs to be formalised into policy” involving the PIF IAC, which was the advisor investment committee.  Then at 266, in relation to that same direction, it said it:

was in the terms of an unqualified direction which prohibited the use of funds, including the funds of PIF, except upon the conditions which he there expressed.  In turn, Mr White appears to have followed that direction . . . But given the terms of Mr King’s email and Mr White’s response to it, there is a basis to infer that, in practical terms, this was an absolute prohibition as far as Mr White was concerned.

Then this is the point your Honour Justice Gordon is making.  That is discounted not because King does not have the capacity to influence MFSIM.  It is discounted because it is said the source of that capacity was his position in the parent company, rather than below.  That was just the wrong question.

So with all of this, in our submission, one does not see – and this really goes to the two bases argument – ASIC losing in the Court of Appeal because the Court of Appeal cast doubt on King’s capacity to exercise influence.  They lost in the Court of Appeal because that capacity had a different foundation from the foundation in law that the Court of Appeal thought was required and, if the Court of Appeal was wrong about that, then there is not any basis to say that these other grounds of appeal challenging the facts remain undetermined.

The Court looked at all of the facts.  If the Court had thought that those grounds of appeal were good and actually Mr King did not have the influence that had been claimed, then Mr King would have won on a far simpler basis than is reflected in the reasons.  But as I showed your Honours in paragraph 2 of the later judgment, the penalty judgment, summarising their own liability judgment the court said, we disagreed with the trial judge on the law.  We did not disturb any of his findings on the facts.  That is what they say in paragraph 2.  That, in our submission, is an accurate summary of what one sees in these paragraphs.

I could take your Honours to some other examples in the nine, but I will not.  They follow the same pattern.  But at the end of the nine examples one sees paragraph [286].  This is effectively a summary of where the court gets to:

Of the nine examples offered by ASIC’s submissions, it can be seen then that many of them did not involve Mr King performing a role which could be characterised as one from his acting in an office or position within MFSIM.  In some cases, however, Mr King saw fit to intervene . . . to issue directives as to how things should be done.

Then in both [287] and [288], particularly the second sentence of both of those two paragraphs, as your Honour Justice Keane put it to my friend, there is a dichotomy being drawn as to the capacity in which that influence was being exercised, which is not the statutory question.

It is not obvious to me as I stand on my feet what the answer to the procedural question is about the notice of contention versus notion of

cross‑appeal if it was necessary to raise these matters.  In our submission, we put in issue – ASIC put in issue by filing the notice of appeal the legal basis upon which particular findings were made and sought particular orders that was the reinstatement of the primary judge’s orders.  It had not been put by either a notice of cross‑appeal or a notice of contention that there was to be some alternative basis for preventing this appeal being the final resolution of this very long running matter one way or the other.

If the matter was to be remitted to the Court of Appeal, it would, in our submission, be most unclear what task remained to be performed by the notice of appeal in circumstances where, in our submission, it cannot be said that the court did not grapple with the factual errors that were alleged in the grounds that were identified by our friends.  That, indeed, seems to be what is being done in the passages from paragraph [249] through to [288].  It is, in my submission, apparent from those paragraphs that the factual challenge did not succeed.  What succeeded was the legal challenge, and if the factual challenge failed, it follows that it does not remain to be determined.  No purpose would be served sending it back to the Court of Appeal.  If the Court pleases.

KIEFEL CJ:   The Court reserves its decision in this matter and adjourns to 9.30 am tomorrow for pronouncement of orders and otherwise to 10.00 am.

AT 3:15 PM THE MATTER WAS ADJOURNED