Ho v Akai Pty Ltd (In Liq)

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FEDERAL COURT OF AUSTRALIA

Ho v Akai Pty Limited (in liquidation) ACN 001 500 714 [2006 ] FCAFC 159

PRACTICE AND PROCEDURE – appeal from interlocutory judgment – orders setting aside in part application and service outside jurisdiction – whether prima facie case established for relief sought – O 8 r 2(2)(c) of Federal Court Rules

CORPORATIONS LAW – management agreement between Akai Holdings and Grande Group Limited in 1999 – Akai Holdings parent company of Akai Australia – Grande Holdings parent company of Grande Group Limited – Akai Australia wound up in 2000 on grounds of insolvency

CORPORATIONS LAW - application sought orders and declarations against Grande Holdings and Chief Executive as deemed officers and/or shadow directors of Akai Australia for contraventions of Corporations Law and Corporations Act 2001 (Cth) relating to insolvent trading – orders sought against Grande Holdings and Grande Group Limited as holding companies of Akai Australia in respect of insolvent trading

CORPORATIONS LAW –shadow director claim against Chief Executive and Grande Holdings - management authority given to Grande Group Limited – evidence sufficient to establish prima facie case against Grande Holdings and its Chief Executive

CORPORATIONS LAW – officer claim against Chief Executive and Grande Holdings – definition of officer of corporation – in light of conclusion relating to shadow director claim relating to Chief Executive arguable claim as officer of Akai Australia – consequential case against Grande Holdings

CORPORATIONS LAW – claims against Grande Group Limited and Grande Holdings as holding companies – whether companies in a position to control composition of Akai Australia’s Board or cast or control casting of votes at general meeting of Akai Australia – construction of management agreement – whether agreement authority extended beyond management of company business

Corporations Act 2001 (Cth) ss 180, 181, 182, 588G, 588H, 588J, 588P, 588V, 588W, 1317H, 1400, 1401
Corporations Law ss 9, 60, 180, 181, 182, 232(2), 232(4), 232(6), 1317HD
Corporate Law Economic Reform Program Act 1999 (Cth) Sch 3, Pt 3, cl 111

Federal Court Rules O 4 r 3, O 8 rr 1, 2(2)(c), O 9 r 7

Merpro Montassa Ltd v Conoco Specialty Products Inc (1991) 28 FCR 387 cited
WSGAL Pty Ltd v Trade Practices Commission (1992) 39 FCR 472 cited
Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 cited
Western Australia v Vetter Trittler Pty Ltd (in liq) (1991) 30 FCR 102 cited
Century Insurance (in provisional liquidation) v New Zealand Guardian Trust [1996] FCA 376 referred to
Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 referred to
Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317 considered
Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290 cited
Secretary of State for Trade and Industry v Deverell [2001] Ch 340 cited
Australian Securities Commission v A S Nominees Ltd (1995) 133 ALR 1 cited
Forge v Australian Securities and Investments Commission [2006] HCA 44 referred to
Re HIH Insurance Ltd (in prov liq) and HIC Casualty…

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Details
Case
[2006] FCAFC 159
Decision Date

CaseChat Overview and Summary

The parties involved in this case are Akai Pty Ltd (in liquidation) and its liquidator (the applicants) against Mr Ho and Akai Holdings Ltd (the respondents). The applicants are seeking to appeal 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. The application raised 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, the company which is now in liquidation. The legal issues in this case revolve around the interpretation of O 8 r 2(2)(c) of the Federal Court Rules and the requirement for a prima facie case to be made out in order to proceed with the application. The court was required to determine whether the applicants had established a prima facie case for relief against the respondents and whether the relief sought was substantially the same for both the officer and shadow director claims. The court also needed to consider whether there was a prima facie case for relief against Grande Holdings as a holding company for the insolvent trading of Akai Australia.

The court found that the applicants had established a prima facie case for relief against Mr Ho as an officer of Akai Australia, but not as a shadow director. The court also found that there was a prima facie case for relief against Grande Holdings both as a shadow director and as an officer of Akai. However, the court 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. The court dismissed the appeal and granted leave to appeal, ordering the parties to provide written submissions on the question of costs within seven days of the date of this judgment.

Orders

Orders of the court

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.

Background

Background to the litigation

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 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. 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.”

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

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 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. 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”. 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. 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.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.