Australian Securities and Investments Commission v King & Anor [2019] HCATrans 104 (17 May 2019)

Last Updated: 21 May 2019

[2019] HCATrans 104

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B4 of 2019

B e t w e e n -

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Applicant

and

MICHAEL CHRISTODOULOU KING

First Respondent

ACN101634146 PTY LTD (IN LIQUIDATION)

Second Respondent

Application for special leave to appeal

BELL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

FROM SYDNEY BY VIDEO LINK TO BRISBANE

ON FRIDAY, 17 MAY 2019, AT 9.31 AM

Copyright in the High Court of Australia
MR J.P. MOORE, QC: If the Court pleases, I appear with my learned friend, MS K.E. SLACK for the applicant. (instructed by Corrs Chambers Westgarth)

MR D.G. CLOTHIER, QC: If the Court pleases, I appear with MS B.J. KABEL for the first respondent. (instructed by Tucker & Cowen Solicitors)

BELL J: Yes, Mr Moore.

MR MOORE: Your Honours, this application raises a question which, in our submission, is of fundamental importance to the regulation of corporations in Australia. If your Honours have the application book at volume 2 page 712, your Honours will see there the definition of “officer of a corporation” and “officer of a corporation” is defined to mean relevantly a person:

who has the capacity to affect significantly the corporation’s financial standing –

Now, if that definition is satisfied, of course, there are very significant consequences that follow for the rest of the Act. What the Court of Appeal did was to construe that term so that a requirement is necessary, although the requirement does not find expression in the terms of the definition. If your Honours turn to page 545 of the application book at paragraph [249] the Court of Appeal said:

In our conclusion it was necessary for ASIC to prove that Mr King acted in an “office” of MFSIM -

the relevant company and the meaning of that additional requirement “office” is explained by the Court of Appeal in paragraph [246] on page 544 of the application book at about line 26 in a sentence commencing “But it is another thing to say”.

BELL J: Yes.

MR MOORE:

as in our view the High Court did not say, 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”.

So the Court of Appeal have said that even if a person involves him or herself in the management of a corporation in such a way that that person has the capacity to affect significantly the corporation’s financial standing, that person will nonetheless not be an officer unless it is also shown that that person had a recognised position in that very corporation.

BELL J: Here, I think, the position is the first respondent was the chief executive officer for the company that was the controller of the group, as it were, and so Mr White reported to him and the conclusion was, nonetheless, the first respondent did not have the capacity to affect significantly the entity’s financial standing notwithstanding, I think, his admission that he had overall responsibility?

MR MOORE: Exactly, and notwithstanding his concession that he was, in effect, CEO for the entire group, not just CEO of the parent company. He regarded himself, as did everyone else, as CEO of the entire group.

BELL J: Yes. That was in the context of the admission of overall responsibility?

MR MOORE: Yes, yes. But the evidence showed that in exercising his duties and responsibilities as CEO of the group with overall responsibility he involved himself to, we say, a very significant degree in the management of the very company, MFSIM, in question. He issued directions of what he thought and commanded should happened to MFSIM’s money, MFSIM being the responsible entity, holding money on trust for retail investors. The evidence showed that on occasion he commanded how that money was to be used and the evidence also showed that his wishes were complied with. So, he had a very significant degree of control over MFSIM’s management activities.

KEANE J: Mr Moore, what you just said would bring Mr King within the definition of (b)(i) of “officer”.

MR MOORE: It might do so, but we

KEANE J: It is put against you that your case was pleaded and run on the basis that you were relying on (b)(i) rather than (b)(ii).

MR MOORE: I think we pleaded and relied on (b)(ii) and it is put against us that the learned trial judge found both (b)(i) and (ii) even though we did not plead (b)(i), that is what is put against us and we accept that proposition. We did not rely on (b)(i), we only relied on (b)(ii). We succeeded before the trial judge satisfying his Honour that (b)(ii) was satisfied. Mr King had that capacity to affect MFSIM’s financial standing significantly. The Court of Appeal disagreed, we say, because of this additional requirement read into the Act.

KEANE J: I suppose, insofar as there was evidence that might have been taken to establish a case under (b)(i), even though it had not been pleaded, that would tend to prove the capacity – the exercise of the capacity tends to prove the existence of a capacity.

MR MOORE: Exactly, that is exactly the way it was put and accepted by at least the learned trial judge.

BELL J: Yes, I think, Mr Moore, it might be most convenient if we hear from Mr Clothier at this point.

MR MOORE: As your Honours please.

BELL J: Mr Clothier, I just note that there is a submitting appearance for the second respondent. Yes.

MR CLOTHIER: Yes, your Honour. Your Honours, it is our submission that on the findings and conclusions of the Court of Appeal, including their conclusions about what the primary judge did not file, that the suggested point of principle of construction of the Act was not determinative of the Court of Appeal’s findings and, secondly, it is our submission that the construction adopted by the Court of Appeal is not attended by sufficient doubt to warrant

BELL J: Mr Clothier, if I can just direct your attention to the first of those propositions. How, given the Court of Appeal’s analysis to which Mr Moore took us, can you, as it were, insulate their Honours’ factual finding from their Honours’ view as to the necessity that the person have designated duties, as it were, within the company?

MR CLOTHIER: Can I take your Honours to the reasons to demonstrate that?

BELL J: Yes.

MR CLOTHIER: It starts with the pleaded case which commences at 537 of the record book and going over to page 538 their Honours set out the relevant pleading of Mr King being an officer which involved particular factual allegations that he reported directly – so that Mr White reported directly and frequently to him in the performance of Mr White’s role in MFSIM and:

customarily acted in accordance with King’s instructions and wishes –

and, secondly that Mr King:

had overall responsibility –

and the notion of “overall responsibility” was given some definition by the particulars - if your Honours go to paragraph (b) of the particulars, for example, it was suggested:

that in practical terms King took overall responsibility for the major decisions of MFSIM –

in (c)(v) that he had:

overall responsibility for the management –

and culminating in an allegation at page 539 of the record in (viii) that, in effect, he and Mr White between them:

controlled the affairs of MFSIM.

It was the pleading that defined and was always required by Mr King to define the ambit of the allegations and in that each of the facts of capacity, the extent of capacity and the character of capacity was in issue. Your Honours see that from the passages quoted by the Court of Appeal at [231] of the reasons, from the primary judge’s reasons, particularly [678] of the primary judge’s reasons.

Their Honours then found, as I think has been observed at [235] to [236], that the primary judge made a finding of participation in making decisions even though that was not the pleaded case, but they also found at [236] that the primary judge made an ultimate finding to the effect of having the relevant capacity but it was not preceded by specific findings as to the pleaded matters said to demonstrate such capacity.

Their Honours then commenced their discussion of the relevant legal principles that I will come back to, but from about [255] their Honours analysed the evidence. Their Honours did so in two respects by analysing some general evidence of admissions said to have been made by.....putting that in context and, secondly, by analysing some specific examples that were said to be indicative of Mr King’s capacity in the circumstances.

The particular examples upon analysis by the Court of Appeal included some that were reflective of Mr King’s involvement not in the affairs of MFSIM. To the extent that there were some that were said to be indicative of Mr King’s involvement in the affairs of MFSIM, their Honours put that in particular context.

To give your Honours one example, there is an allegation that Mr King directed the lending policy of MFSIM and their Honours analysed the evidence to conclude that whilst Mr King communicated with Mr White about that topic, Mr White then communicated with people within MFSIM about that topic. There was no evidence to ultimately indicate that the lending guidelines had been changed in accordance with Mr King’s..... The evidence was that such a change would have to happen by a committee or by the board and there was no particular evidence adduced by committees or boards to that effect.

So, their Honours carefully analysed the evidence recognising that each of the questions of capacity, extant and character, were in issue and then came to their conclusions at [287] to [288]. Their Honours referred specifically to their conclusions about the nine examples at [286] at page 554 of the record book. It was said 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.

But it was recognised that some of them were indicative of an intervention. At [287] and [288], their Honours, bearing in mind what we have said about each of the three relevant matters being in issue for the primary judge at the Court of Appeal, expressed themselves as saying, in effect, at [288]:

we are not persuaded that ASIC proved that Mr King had the capacity to affect significantly

BELL J: But, Mr Clothier, just to come back to this question of the degree to which one can insulate the approach that the court took to the concept of “officer”, one sees in the second sentence in [287], their Honours refer back to their conclusion as to the necessity for ASIC to prove that Mr King possessed the relevant capacity by acting in an “office”.

MR CLOTHIER: That is so, your Honour, of course. Their Honours expressed that as something which has to be considered further to the basic question whether he had a capacity to affect significantly – so, their Honours identified, correctly, in our submission, that in the way that the case was conducted at trial and on appeal there were separate, albeit related questions, as to the existence and extent of Mr King’s capacity and as to the character of it.

KEANE J: In [288], their Honours say, after the first sentence:

Further, any capacity which he did have to affect that matter was one which derived from his position of CEO of the MFS Group and was exercised by him in that role, rather than from acting in an office or position within MFSIM.

So that this is harking back to the notion that he has to be acting in an office recognised as such.

MR CLOTHIER: Yes, your Honours. Certainly, the Court of Appeal concluded that but we would submit that the Court of Appeal was aware, given the issues before it and the primary judge, that there was an issue as to whether Mr King had a capacity separately from the character of it. One reads [288] as being a finding that the Court of Appeal was not persuaded he had the capacity separately from the character of it.

KEANE J: It is hard to disentangle the view that the capacity has to be one which derives from a recognised office in the company, is it not?

MR CLOTHIER: In our submission, it was not in the way in which the case was particularised and run below because, as I have shown your Honours, in terms of the pleading the case was, in effect, that in his role in MFSIM Mr White habitually acted in accordance with Mr King’s instructions and it was that mechanism that led to Mr King’s capacity to significantly affect the affairs of MFSIM.

So, the Court of Appeal had to consider that basic factual question in addition to the character of any capacity and it did, in our submission. It did recognise him, as it alluded to at the bottom of [288], that there was a substantial body of evidence as to MFSIM’s de jure manager, including its board, including its various committees and internal controls which affected the way in which MFSIM’s financial circumstances could be affected.

KEANE J: Mr Clothier, you are advancing an argument that special leave should not be granted because the question does not really arise because on the findings that were made your side wins.

MR CLOTHIER: In our submission, yes.

KEANE J: Just accepting for the moment that maybe there is a difficulty in disentangling the two lines of approach, the factual approach that you are urging on us and the view as to the capacity in which Mr King had to act, going back to the proposition that it had to be shown that he was acting in some recognised position do you support the Court of Appeal’s approach in relation to that notion?

MR CLOTHIER: We do, your Honour. In our submission

KEANE J: Well, how does the position have to be recognised? Does it have to be in the constitution of the company?

MR CLOTHIER: No, your Honour.

KEANE J: Is it enough that there is a contract?

MR CLOTHIER: No, your Honour. The court did not require that there be a formal legal recognition of it. The court was, in our submission, talking about simply an objective recognition on the facts that the person occupied a position or performed the role within the management of the company and did not impose a test that it be recognised legally or, indeed, that it be necessarily a lawful role. That is, in our submission, clear from the fact that the court adopted the reasoning in Grimaldi which is to that effect.

KEANE J: So, on what basis then did the Court of Appeal hold that ultimately – did it ultimately hold that Mr King was not an officer?

MR CLOTHIER: On the basis, your Honour, that its analysis of the evidence in addition to indicating a lack of the relevant capacity did not indicate that what he did could be seen to be within a position in the management of the company. It concluded that it could be seen from the evidence that he certainly had some position of influence in some respects. But its conclusion was that was not sufficient to give rise to the ultimate finding.

Your Honours, the reasoning of the Court of Appeal depends in significant measure upon those duties which the definition of “officer” informs and they include, as is set out in the record book from page 713, the duties under 180 and following, and the specific references in section 180, for example, to a duty of care by reference to the notions of the office occupied or held by and the same responsibilities within; if your Honours go over the page to section 182 to the reference to improperly using a position and if your Honours then go to 731 of the record book to section 181 to an obligation which assumes that there will be powers and duties within the corporation.

The finding of the Court of Appeal, consistently with the Full Court in Grimaldi, is that these provisions inform the meaning of “officer” and what is assumed

BELL J: I am sorry, Mr Clothier, but relevant as it is to look at the surrounding provisions, nonetheless when one comes back to the test one is looking at the concept of a person who has the capacity to affect significantly the corporation’s financial standing and, on one view, to
import into that a requirement that the person occupy a position having particular duties is something of a gloss.

MR CLOTHIER: We understand the argument, your Honour, but

BELL J: Can I take this up with you then, Mr Clothier. You understand the argument, do you accept it is a matter of genuine importance?

MR CLOTHIER: We accept that, your Honour.

BELL J: Yes.

MR CLOTHIER: Our submission on that is that two intermediate courts of appeal have reached the same conclusion. It is one which is consistent with the text of the Act as a whole and one which works no confusion in its application and not one which, in the circumstances of this case, in particular, having regard to what I said about the factual findings, would invite your Honours to grant special leave. Those are my submissions, your Honours.

BELL J: Thank you, Mr Clothier. Yes, thank you, Mr Moore. We do not need to hear from you further, Mr Moore. There will be a grant of special leave in this matter. What is the estimated time, Mr Moore?

MR MOORE: One day, your Honour.

BELL J: Yes. Mr Clothier, you agree with that?

MR CLOTHIER: I agree, your Honours.

BELL J: Very well. I invite the parties’ instructors to obtain from the Registry the directions relating to the filing of submissions, noting that there is a grant of special leave in the application. Thank you.

AT 9.52 AM THE MATTER WAS CONCLUDED