- Notable Unreported Decision
- Appeal Determined (QCA)
SUPREME COURT OF QUEENSLAND
R v Young  QCA 3
YOUNG, Bradley Wendell
CA No 237 of 2016
DC No 1503 of 2014
Court of Appeal
Appeal against Conviction & Sentence
Miscellaneous Application - Criminal
District Court at Brisbane – Date of Conviction: 5 August 2015; Date of Sentence: 12 August 2016 (Farr SC DCJ)
31 January 2020
15 November 2018
Further written submissions: 12 and 26 February 2019
Further written submissions: 17 October 2019
Further written submissions: 19 and 29 November 2019
Gotterson and McMurdo JJA and Mullins AJA
CRIMINAL LAW – PARTICULAR OFFENCES – PROPERTY OFFENCES – OTHER FRAUDS AND IMPOSITIONS – FRAUD – where the appellant was found guilty of one count of fraud – where that charge arose from the appellant’s involvement in companies associated with the Kleenmaid white goods business – where the Kleenmaid group urgently needed to raise external finance to remain solvent – where the group restructured itself by dividing into two groups of companies, the Corporate Group and the Orchard Group – where Corporate Group companies conducted the core white goods business with a license to use the Kleenmaid trademark from an Orchard Group company – where the Orchard Group was encumbered by a significant portion of the pre-restructure debt – where the charge alleged that the appellant dishonestly gained a benefit for EDIS, a Corporate Group company – where that benefit was alleged to be loan facilities from Westpac totalling $13 million – where the dishonesty was alleged to be, in essence, misleading Westpac about the effect of the restructure – where it was alleged that Westpac was made to understand that Corporate Group companies would conduct their businesses independently and at arm’s length from the Orchard Group when in fact there was an arrangement by which an Orchard Group company would receive deposits until items were delivered – where that arrangement was said to deny EDIS cash flow and make them prone to any misfortune that befell the Orchard Group – where the appellant at trial was said to have acted dishonestly in the commission of the offence because he attended meetings with Westpac about the proposed loan facilities, was involved in the preparation of documents relied on by Westpac in their decision to approve the facilities, signed the letter of offer, and approved the terms of a letter said to show the concealing of the arrangement between the groups – where the appellant’s case at trial was that the groups did trade at arm’s length, that he was unaware of any serious debt position of the Orchard Group, and there was no concealment of any material risk to Westpac from the connections between the groups – where there was some exculpatory testimony from employees of the groups and Westpac – whether the jury was obliged to accept that exculpatory testimony – whether the verdict on the fraud count was unreasonable and unsupported by the evidence
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – PRESENTATION OF CROWN CASE – where the prosecution, prior to the commencement of the trial, provided particulars of the count of fraud in a document – where one of those particulars stated that the co-accused were “complicit in concealing from the bank” certain matters – where the prosecution had previously advised the co-accused that it was relying on the co-conspirators’ principle from Tripodi v The Queen – where, on day 53 of the trial, the prosecution advised the Court that it would no longer rely on Tripodi and subsequently amended its particulars to allege that the appellant was guilty of the offence as a principal under s 7(1)(a) of the Criminal Code – where the trial judge, at the conclusion of the prosecution’s evidence, ruled on an application by the appellant to exclude evidence of conversations between the co-conspirators and others – where the judge rejected that application on the basis that the evidence was admissible not under the Tripodi exception to hearsay evidence, but as probative of a fact in issue – where it is said that, despite the change in the prosecution’s case, the prosecution and judge continued to use the language of joint criminal enterprise – where, despite the change in the prosecution case, the acts and omissions that were said to constitute the offence were still clearly particularised – whether the change in the prosecution case as to the basis of criminal responsibility caused a miscarriage of justice
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – PARTICULAR CASES – WHERE APPEAL DISMISSED – where the jury was not directed about the need for the act or omission, which constituted the offence by the appellant, to have occurred in Queensland – where no direction was sought to this effect at trial – where at least one of the acts occurred in New South Wales – where it was more probable than not that the other acts were done within Queensland – whether the lack of directions as to the locality of the offences caused a miscarriage of justice
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – PARTICULAR CASES – WHERE APPEAL DISMISSED – where the prosecution on day 69 abandoned a particular of the alleged fraud – where defence counsel then submitted that a prosecution argument went beyond the particulars – where the trial judge observed that the matter emerged in evidence “a very long time ago” and before the appellant gave his evidence – where the trial judge then directed the jury as to particulars which concerned that matter – where those directed particulars were strongly argued by the prosecution in their closing address – whether the judge by his own motions expanded the particulars of the count
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – PARTICULAR CASES – WHERE APPEAL DISMISSED – where the appellant was charged with offences of insolvent trading against s 588G(3) of the Corporations Act – where it was disputed at trial whether EDIS was insolvent, whether the appellant as a director of EDIS suspected that it was insolvent and whether the appellant’s failure to prevent EDIS from incurring the respective debts was dishonest – where the learned trial judge directed the jury that there must be “reasonable grounds known to the defendant for suspecting that the company is insolvent” – where the learned trial judge also directed the jury to apply the test of insolvency provided by s 95A of the Corporations Act and to take into account factors relevant to commercial realities in determining the element of insolvency – whether the directions to the jury were deficient – whether the content of s 588G(1)(c) of the Corporations Act is an element of the offence in s 588(G)(3) – whether the jury was adequately directed on the element of insolvency
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISCARRIAGE OF JUSTICE – PARTICULAR CIRCUMSTANCES NOT AMOUNTING TO MISCARRIAGE – where the appellant was charged with offences of insolvent trading against s 588G(3) of the Corporations Act – where the Crown adduced expert evidence that expressed the opinion, amongst other things, that EDIS and other groups companies had been insolvent since March 2008 – where the Crown adduced opinion evidence from another witness which the defence objected to on the basis of notice and a limitation of the witness’s expertise to give the opinion – where the Crown sought leave during the trial to recall a witness in order to correct his evidence – whether a witness impermissibly gave expert evidence about the point in time when EDIS became insolvent – whether a miscarriage of justice occurred due to the prosecutor leading, without notice, expert evidence from another witness – whether the Crown improperly used the fact that a witness had corrected his evidence to unfairly discredit the appellant
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – APPEAL DISMISSED – where the appellant was charged with offences of insolvent trading against s 588G(3) of the Corporations Act – where it was disputed at trial whether EDIS was insolvent, whether the appellant, as a director of EDIS, suspected that it was insolvent, and whether the appellant’s failure to prevent EDIS from incurring the respective debts was dishonest – where there was voluminous evidence about the financial position of EDIS and the other group companies – where the appellant contended on appeal that there was insufficient evidence that EDIS was insolvent based on a cash flow test – whether it was open to the jury on the evidence to conclude that EDIS was insolvent, that the appellant suspected it was insolvent, and that the appellant’s failure to prevent EDIS from incurring the respective debts was dishonest
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – FRESH EVIDENCE – where the appellant applied to present further submissions, long after the hearing and the delivery of extensive further written submissions – where the evidence came from the recent trial of these charges against the appellant’s brother – where it was contended that the evidence of Mr Hughes, the administrator and subsequent liquidator of a number of Kleenmaid companies, changed fundamentally from the appellant’s trial to his brother’s later trial – whether the evidence revealed a miscarriage of justice in the appellant’s trial
CRIMINAL LAW – APPEAL AGAINST SENTENCE – GROUNDS FOR INTERFERENCE – SENTENCE MANIFESTLY EXCESSIVE OR INADEQUATE – where the appellant was sentenced to nine years’ imprisonment for the offence of fraud – where at the time of the commission of the offence of fraud, the maximum penalty was 10 years’ imprisonment – where the non-parole period effectively amounted to nearly 70 per cent of the period of imprisonment – whether this term, and the total non-parole period which resulted from this term and the cumulative sentences for the other offences, resulted in an overall sentence which was manifestly excessive
Corporations Act 2001 (Cth) s 95A, s 588G(1)(c), s 588G(3)
Criminal Code (Cth), s 9.1
Criminal Code (Qld), s 2, s 12, s 22, s 24, s 408C
R v Armstrong  QCA 243, cited
R v Collins, ex parte Attorney-General  1 Qd R 631;  QCA 467, cited
Sandell v Porter (1966) 115 CLR 666;  HCA 28, applied
SKA v The Queen (2011) 243 CLR 400;  HCA 13, cited
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213;  NSWSC 621, considered
Tripodi v The Queen (1961) 104 CLR 1;  HCA 22, cited
S C Holt QC for the appellant/applicant
W J Abraham QC, with T R Epstein, for the respondent
L K Crowley QC, with P Kinchina, for the respondent, for further submissions received 19 November 2019
Anderson Fredericks Turner for the appellant/applicant
Director of Public Prosecutions (Commonwealth) for the respondent
THE COURT: The appellant was tried by a jury in the District Court on one count of fraud, an offence against s 408C of the Criminal Code (Qld) (“the Code”), and 18 counts of insolvent trading, offences under s 588G(3) of the Corporations Act 2001 (Cth). The charges arose from the appellant’s involvement in companies associated with the Kleenmaid white goods business, which went into liquidation as insolvent companies in 2009. The prosecution tendered almost 4,000 exhibits and called 53 witnesses, before the defendant gave evidence himself over 12 days, nine of them under cross-examination, and called other witnesses. Ultimately, the trial had been running for more than 70 days when the jury retired to consider their verdicts. Later that day, the jury convicted the appellant of all counts on the indictment, save for one count of insolvent trading, on which they acquitted the appellant.
The appellant was sentenced to a term of nine years’ imprisonment on the fraud count, with eligibility for parole on 5 February 2021, which was at the halfway mark of that sentence. On two of the insolvent trading counts, he was sentenced to terms of two and a half years, to be served concurrently with each other but to commence on 5 February 2021. On the other counts, he was sentenced to various terms of up to 12 months’ imprisonment, to be served concurrently with each other but cumulative upon the other counts. The total period of imprisonment for the Commonwealth offences was three and a half years, with a non-parole period of 21 months to finish on 5 November 2022.
He appeals against his conviction in each case, and applies for leave to appeal against his sentence. There are 10 grounds of appeal against the conviction on the fraud charge and seven grounds which challenge the convictions on the insolvent trading counts. The grounds include, in the case of each conviction, an argument that the verdict was unreasonable and cannot be supported by the evidence. As we will discuss, after the hearing, the appellant applied to add a further ground of appeal against each conviction, on the basis of what is said to be fresh evidence. The sentence imposed for count 1, the fraud charge, is said to be manifestly excessive, and it is also argued that the trial judge made a number of errors in findings of fact which affected his assessment of the appellant’s culpability and criminality, requiring the appellant to be re-sentenced on that count.
The Kleenmaid business
The Kleenmaid business was founded in 1985 by the appellant’s brother, Andrew Young, and Mr Richard England. From 1995, the business was managed from Maroochydore. Mr England retired from the operations of the business in about 2000.
The business was the importation and retailing of whitegoods, through a chain of stores across Australia, some of which were operated by the Kleenmaid group of companies and some of which were operated by franchisees. Most of the goods were sold under the Kleenmaid brand, but the business also sold “GE” branded refrigerators.
The appellant became involved in the business in 1995. He became a secretary and a director of certain companies in the Kleenmaid group, including the company then called Kleenmaid Pty Ltd, which later became Orchard KM Pty Ltd (“Orchard KM”), of which he was the managing director from December 2005 until the end of 2007.
The company which was the subject of each of the counts on the indictment was called EDIS Service Logistics Pty Ltd (“EDIS”). The fraud charge, which was count 1 on the indictment, alleged that the appellant, together with Andrew Young and Mr Gary Armstrong, dishonestly gained a benefit for EDIS, namely loan facilities from Westpac Banking Corporation in a total amount of $13 million, in November 2007. Each of the counts of insolvent trading involved a debt or debts incurred by EDIS, in a period from July 2008 until April 2009.
Until 2007, the shares in EDIS were held by Mr Armstrong and Mrs Carol Armstrong. From 1997, they were also the company’s directors until, in 2002, Mrs Armstrong was replaced by Andrew Young.
In 2001, that branch of the Kleenmaid business that supplied spare parts for Kleenmaid products was transferred to EDIS. EDIS conducted that undertaking under an exclusive licence granted by the company that became known as Orchard KM. In about 2004, EDIS entered into an arrangement to supply spare parts for GE products. In about April 2006, EDIS acquired the shares in Kleenmaid Customer Solutions Pty Ltd (“KCS”), which provided after sales and repair services for Kleenmaid products. It also became the owner of Bizco Retail Pty Ltd (“Bizco”), which provided coaching and training services for ten Kleenmaid stores in New South Wales, and provided display stock and fit-outs for those stores. Until 2007, EDIS operated profitably. As at 30 June 2007, according to management accounts, it had net assets of $8.784 million, and in the year to that date, its profit before tax was $3.011 million.
However, the case was not the same for the Kleenmaid group as a whole. There was evidence that the core business of the Kleenmaid companies had not been profitable since at least July 2006, that the company owned stores were losing approximately $10 million per annum, and on the evidence of Mr Richard Hughes, who became an administrator, and subsequently a liquidator, of a number of the Kleenmaid companies (including EDIS), that the overhead structure was too large for the level of sales and profit that the Kleenmaid group generated. In his opinion, the companies had become reliant upon the cash flow from external finance and the receipt of deposits from customers (which were held often for some time before delivery of the product) in order to remain solvent.
The main operating entity of the appliances business, until late 2007, was Orchard KM. The evidence of Mr Hughes was that this company was insolvent by March 2008, and that because of the relationships between it and certain other companies, including EDIS, those companies were also insolvent. By December 2007, Orchard KM had a deficit in its balance sheet of $6.3 million (although, in the opinion of Mr Hughes, a correction of an overstatement of sales was appropriate, which would have increased the deficit by $17.6 million).
Orchard KM was not the only company in the Kleenmaid group which was in financial difficulty by 2007. Another company, Kleenmaid Retail Pty Ltd, which operated the company-owned retail stores, had a balance sheet deficit of $24 million by the end of that year.
Consequently, by at least mid-2007, the Kleenmaid group urgently needed to raise more external finance. But the financial state of the group (apart from EDIS and its subsidiaries) made it unlikely that further finance could be raised. It was in these circumstances that there occurred what was described as a restructure of the Kleenmaid group. The apparent effect of the restructure was to divide what had been the one group into two groups of companies, which were described as the Corporate Group and the Orchard Group. On the basis of this restructure, the core business of the Kleenmaid companies was to be conducted by the Corporate Group, which was, in substance, EDIS and its subsidiaries.
In November 2007, Westpac was persuaded to provide finance to EDIS, in various ways, in a total amount of $13 million, and on 13 November 2007, EDIS drew down $10 million of the facility. The appellant, his brother and Mr Armstrong were charged with the offence of dishonestly gaining that benefit, the Westpac facility, for EDIS. In essence, the alleged dishonesty was in misleading Westpac about the effect of the restructure. It was alleged that Westpac was made to understand that EDIS and the other companies in the Corporate Group would conduct their businesses independently and at arm’s length from companies in the Orchard Group, so that any misfortunes of the Orchard Group would not affect EDIS and those other companies.
Following this restructure, EDIS became the company which imported and distributed Kleenmaid appliances and GE refrigerators to retail, commercial and a small number of wholesale customers.
As we have said, some of the Kleenmaid stores were operated by a company in what had been the Kleenmaid group, and some were operated by franchisees. The franchisor became a company in the Corporate Group, Lifestyle Appliance Corporation Pty Ltd (“LAC”). Under the franchise agreements, in selling any item, a franchisee was said to act as the agent of the franchisor and the franchisee was remunerated by the payment of a commission, calculated by the difference between the so-called “list” and “dealer” prices. The franchise agreements provided that any cash payments received by a franchisee were received on behalf of the franchisor. The evidence was that the “non-franchise” stores operated in the same way. They continued to be operated by Kleenmaid Retail Pty Ltd (which was in the Orchard Group) as if they were franchisees.
As we have said, the evidence of Mr Hughes was that the cash flow of the core Kleenmaid business had been sustained by external finance and the use of deposits received from customers pending the supply of their goods. As it happened, however, after the restructure, the deposits were not able to be used by the Corporate Group, but instead were used by the Orchard Group, through a company by then called Kleenmaid Pty Ltd, and which was described as the “Order House”. This was pursuant to an arrangement between that company and EDIS which, Mr Armstrong testified, was conceived of by the appellant. Under this Order House arrangement, when a customer ordered a Kleenmaid appliance, Kleenmaid Pty Ltd would issue a “sales order” to the customer and receive a deposit. Only when the appliance was about to be delivered, which might be weeks or months later (or sometimes longer still), would EDIS issue an invoice and receive payment from Kleenmaid Pty Ltd of the total price. In the meantime, the deposit from the customer was able to be used to pay debts of companies in the Orchard Group, most notably Orchard KM. Until the price for the appliance was paid to EDIS, there was an indebtedness by Orchard KM to Kleenmaid Pty Ltd, and from it to EDIS.
One effect of the Order House arrangement was that EDIS was denied the cash flow benefit of having the deposits in its hands, pending the delivery of the appliances. Another was that EDIS was at risk of never receiving the deposit, and indeed the whole price for the goods, if Orchard KM became insolvent.
Further, within that period between a customer’s order and the delivery of the appliance, LAC (a Corporate Group company) would pay to Kleenmaid Retail Pty Ltd, or a franchisee as the case might be, the commission on that transaction, thereby placing a further strain upon the cash flow of the Corporate Group. By November 2008, the balance sheet of LAC showed an asset described as “prepay commission” of approximately $4 million, of which approximately $2.7 million related to franchised stores and $1.3 million related to Kleenmaid Retail Pty Ltd.
The Corporate Group did not purchase Kleenmaid’s core business. Instead, that business was to be conducted pursuant to the terms of a licence agreement between KM Intellectual Reserve Pty Ltd (an Orchard Group company) as licensor, and Kleenmaid Corporate Pty Ltd (a Corporate Group company) as licensee. What was licensed was the right to use the trademarks and intellectual property relating to the business. The licence was granted for a period of 10 years from 29 October 2007, with a right of renewal for a further 10 years. The royalty or licence fee was, per annum, the sum of $5 million plus 20 per cent of the earnings of the business before tax above $10 million. The component of $5 million was to be paid in equal monthly instalments. Westpac was informed of this agreement. Indeed, it became a party to a Deed (the “Tripartite Deed”) by which the licensor covenanted not to exercise any default power without notice to Westpac, in order to protect Westpac’s interest as the holder of a fixed and floating charge over the licensee’s assets.
However, the royalty under the licence agreement was not the only consideration which was to be provided to the Orchard Group in the restructure. Kleenmaid Holdings Pty Ltd (an Orchard Group company) was to receive an amount of $9.5 million as the sale price of the shares in EDIS, from Kleenmaid Corporate Pty Ltd (a Corporate Group company). Under a written agreement between those companies, it was recited that Kleenmaid Holdings Pty Ltd was the registered holder, and sole and absolute beneficial owner, of the whole of the issued share capital of EDIS, which it had agreed to sell to Kleenmaid Corporate Pty Ltd. The shares were to be transferred on 31 October 2007, or such other date as the parties agreed. The provisions for the payment of the price were as follows:
“4 PURCHASE PRICE – VENDOR FINANCE
The purchase price for the Shares is $9,500,000 (Purchase Price), subject to adjustment to valuation, which must be paid to the Vendor by the Purchaser within five years of the Completion Date. The purchase price will be treated as a loan by the Vendor to the Purchaser for the purposes of this agreement.
Subject to paragraph 4(c) below, the Purchaser will pay the Vendor interest on that part of the purchase price of the shares that has not been already paid at a rate of 5% per annum. Interest will be calculated from a date 12 months after the date of Completion.
The Vendor and the Purchaser maintain a trading account between the companies. The balance owing on the trading account from the Vendor to the Purchaser shall be netted off against the balance of the purchase price of the shares of the Company for the purposes of determining the amount upon which interest will be payable by the Purchaser under clause 4(b) above. Payments of interest from the Purchaser to the Vendor will be made on a quarterly basis in arrears.
A party (Party 1) will have the right to offset amounts owing under this agreement by them to the other party (Party 2), with any future monies owing by Party 2 to Party 1.”
Curiously, although the price was said to be “subject to adjustment to valuation”, the agreement made no provision for such a valuation or adjustment. More importantly, clause 4(c) referred to a trading account between the companies, the balance of which would be set off against the balance of the purchase price, and clause 4(d) provided more generally for a set-off.
Another curious feature of this agreement was that, in truth, Kleenmaid Holdings Pty Ltd had never been the registered holder of shares in EDIS. The shares were held by Mr and Mrs Armstrong (according to the records of the Australian Securities and Investments Commission) until they were transferred by them directly to Kleenmaid Corporate Pty Ltd. Mr Armstrong said that he did not receive any consideration for the sale of his EDIS shares.
Also curious was the fact that this share sale agreement was not disclosed to Westpac.
“Notwithstanding their separate corporate and ownership structures, the EDIS Group [the Corporate Group] and Orchard Group are inextricably linked. To date, the business has only been partially transitioned to the EDIS Group and although the EDIS Group is notionally responsible for the trading of the business, it does not have control of all of the assets and liabilities.”
Further, McGrathNicol revealed that, following the restructure, loan accounts were established between companies within the two groups. The largest inter-group loan balances, as at November 2008, were a liability of Kleenmaid Corporate Pty Ltd to Kleenmaid Holdings Pty Ltd of approximately $35.5 million, and a liability from Kleenmaid Pty Ltd (the Order House company) to LAC of approximately $54.9 million.
This report described the Order House arrangement. However the ongoing association with the two groups went further, as McGrathNicol described:
“Importantly, the EDIS Group cash transactions are made through a bank account in the name of ‘Kleenmaid Pty Limited’ (“KM Order House”), which is an Orchard Group company. The result of this is that:
- cash is collected by Orchard Group on behalf of the EDIS Group and a corresponding receivable is entered in the books of EDIS Group; and
- EDIS Group’s expenses are paid by Orchard Group and a corresponding liability is entered in the books of EDIS Group.”
The report recorded not only that there were trading receipts and payments made through bank accounts controlled by the Orchard Group, but also that Mr Armstrong was not a signatory to those accounts and that it was the Orchard Group which determined how much was paid from them. McGrathNicol reported that the amount of $35.5 million said to be owed to Kleenmaid Holdings Pty Ltd was comprised of the licence or royalty fee, another sum, approximating $9.8 million, payable under the share sale agreement and a balance which was “likely to [be] made up of payments of trading expenses [by the Orchard Group for the benefit of the Corporate Group]”. The amount of $54.9 million which was receivable from the Orchard Group consisted of amounts held by the Orchard Group under the Order House arrangement.
There was other evidence of the association between the two groups. The appellant continued to be the secretary of Orchard KM until 1 January 2009. Further, there was evidence from Mr Proos, the manager of the spare parts division conducted by EDIS, that, even after the restructure, it was Andrew Young to whom he would go for any major decision about that business.
According to the McGrathNicol report, the position of the Corporate Group, as at 23 November 2008, was that the group had net assets of $12.321 million, derived from total assets of $188.095 million and total liabilities of $175.774 million. But of the assets, $80.83 million was owed by debtors in the Orchard Group, and of the liabilities, a total of $70.742 million was owed to companies in the Orchard Group.
When discussing the appeals against the convictions for the offences of insolvent trading, we will refer to the evidence of the companies’ solvency or otherwise at relevant times in 2008 and 2009. As we have said, the opinion of Mr Hughes was that all companies in these two groups were insolvent by March 2008. Mr Hughes prepared balance sheets for the Corporate Group, as at 30 September 2007 and thereafter at quarterly intervals up to and including a balance date of 31 March 2009, as well as at 9 April 2009, which is when some companies from the two groups were placed into voluntary administration. His balance sheet, as at 31 March 2008, showed the Corporate Group as having an excess of liabilities over assets of $14.907 million, and his balance sheet, as at 9 April 2009, showed a deficiency of $32.637 million.
The evidence of Mr Hughes, as he had said in his report to ASIC under s 533(2) of the Corporations Act, was that by March 2008, the two groups of companies were unable to raise any further significant finance, and “continued to use cash (from customer deposits) at a rapid rate both before and after external sources of finance were exhausted and right up until we were appointed [as administrators]”.
The offences charged against the appellant
The indictment was presented against the appellant, Andrew Young and Mr Armstrong, charging each of them on counts 1 to 19. Prior to the trial, Mr Armstrong pleaded guilty to some of these offences (including count 1) and was sentenced. He gave evidence in the prosecution case against the appellant. After the trial had commenced, Andrew Young dismissed his counsel and solicitor, resulting in the trial proceeding against the appellant alone.
The fraud charge, count 1, alleged that on or about 13 November 2007, at Maroochydore in the State of Queensland, the defendants dishonestly gained a benefit for EDIS, namely loan facilities from Westpac Banking Corporation, with the circumstance of aggravation that the benefit was of a value of $5,000 or more (namely $13 million). As to the place at which the offence occurred, one of the grounds of appeal is that the trial judge ought to have directed the jury to consider whether there was an offence within the territorial reach of the Code, according to s 12, when many of the relevant events had occurred in New South Wales. As to the date of this offence, as we have noted, it was on 13 November 2007 that the first of the funds was drawn down by EDIS.
Undoubtedly, EDIS did gain the benefit of its finance facility with Westpac. Undoubtedly also, the appellant did things by which that benefit was obtained. For example, together with Mr Armstrong, he signed for EDIS the Business Finance Agreement with Westpac, along with a notice to draw down $7 million from that facility. The principal issue at the trial was whether, in doing what he did in gaining that benefit for EDIS, the appellant acted dishonestly.
In essence, the prosecution case was that the appellant acted dishonestly by concealing the nature of the intended ongoing relationship between EDIS (and its subsidiaries) and the Orchard Group, in that in truth, the two groups would not deal with each other on an arm’s length basis, and EDIS would be exposed to what was, unknown to Westpac, the already precarious financial position of the Orchard Group. The prosecution case was that the bank was made to understand that, following the restructure, the Corporate Group, including EDIS, was and would be an independent group, unburdened by, or not prone to, any misfortune of any of the other Kleenmaid companies.
The appellant’s case at the trial, in part reliant on evidence from prosecution witnesses as well as the appellant’s own evidence, was that the Orchard Group and the Corporate Group did trade at arm’s length, that he was unaware of any serious debt position of the Orchard Group, particularly Orchard KM, and there was no concealment of any material risk to Westpac from the connections between the businesses of the two groups.
Counts 2 and 3 charged the appellant, as a director of EDIS and suspecting that it was insolvent, with dishonestly failing to prevent EDIS from incurring debts to Westpac in amounts of $1.5 million and $2 million in July 2008. Counts 4 to 15 inclusive were charges of dishonestly failing to prevent EDIS from incurring debts to a company called CEO Global Logistics Pty Ltd, on various dates from early November 2008 to 8 April 2009, in amounts ranging from $353 to $139,877. Counts 16 to 19 inclusive were like charges in respect of debts incurred to a company called Mitchell & Partners (Qld) Pty Ltd, on dates in a period from October 2008 to January 2009, in amounts varying from $31,810 to $100,448.
The appellant’s case at the trial challenged the allegation that EDIS was insolvent at all times from March 2008. He also challenged the allegation that the appellant suspected that EDIS was insolvent and that his failure to prevent EDIS from incurring those debts was dishonest. On count 15, there was a further challenge, as to whether the appellant had failed to prevent EDIS from incurring the debt, and on count 18, upon which the appellant was acquitted, there was a challenge as to whether EDIS did, in fact, incur the alleged debt.
The fraud offence
We will discuss first the tenth ground of appeal, namely that the jury’s verdict on this count was unreasonable and was unsupported by the evidence. Some of the other grounds of appeal complain that the prosecution changed its case, as to the basis of the appellant’s criminal responsibility, in the course of the trial and that the trial judge impermissibly expanded the particulars of the prosecution case on this count in his directions to the jury. However, we will consider whether the verdict was unreasonable upon the basis on which the prosecution ultimately argued the case to the jury.
The acts of the appellant
At one point in his address to the jury, the prosecutor listed the acts of the appellant by which he committed this offence, as follows:
- the appellant attended at a meeting with Mr Growcock and Mr Dickson of Westpac on 3 October 2007, when the proposed loan facilities for EDIS were discussed;
- the appellant edited a business plan, a document which was presented to a consultant, Mr Patane of the firm William Buck, and used by Mr Patane in writing a due diligence review of the proposed facility as an advisor to Westpac;
- the appellant provided data about the sales and expenses of the core Kleenmaid business, to be used by Kleenmaid’s accountant Mr Drake in preparing projections for the business;
- the appellant signed the letter of offer from Westpac, which constituted the agreement for the facilities as well as a guarantee of the facilities;
- the appellant approved the terms of a letter written to Westpac by Mr Armstrong (which we will call the “September letter”).
The September letter began as follows:
“… I have some important and positive developments to share with you. We now have long-term agreements with the Kleenmaid Group which will allow EDIS to import, distribute and wholesale Kleenmaid products through retail, commercial and wholesale channels. This will give EDIS access to the full wholesale margin on the range of Kleenmaid products.
This arrangement will have a significant positive impact on the turnover and profitability of EDIS, and opens large opportunities for growth.
The arrangement has been documented with a licence agreement between the two Groups, which provides for a licence fee to be paid by the EDIS Group.”
The letter described the business of Kleenmaid as having commenced in 1985, and having supplied more than a million appliances to 600,000 households across Australia. The appliances were said to have been generally of a high standard, and Kleenmaid was said to have “implemented a strong customer service focus” resulting in “a large proportion of the customer base [having] a positive view of the brand”.
The letter referred to the effect of the proposed change in control in the business from Andrew Young to the appellant, as follows:
The founders of Kleenmaid are Andrew Young and Richard England, who has retired. Andrew Young, who is the Chairman of Kleenmaid, is now intending to spend more time away from the business, and this agreement is the result. Kleenmaid will continue to own the brand and associated goodwill, and will receive licence fees from the EDIS Group.
Bradley Young will assume the role of Managing Director of EDIS. Bradley has been employed in senior management roles within Kleenmaid since 1995, including the last two years as Managing Director of Kleenmaid.”
Attached to the September letter was a chart showing what was described as the new structure of the EDIS Group (the Corporate Group) as was then proposed. The chart showed Kleenmaid Corporate Pty Ltd as the ultimate holding company of EDIS, LAC, Lifestyle Appliance Sales Pty Ltd (which was described as the “Franchise Marketing company”) and KM Property Pty Ltd (which was described as “Property Manager”). It showed EDIS as the holding company of KCS and Bizco.
The letter stated that it was proposed that Gary and Carol Armstrong would sell their shareholding in EDIS to Kleenmaid Corporate Pty Ltd, a new entity to be set up for this purpose, which would require the approval of Westpac as the mortgagee of the shares. However, the letter did not disclose a proposal that Mr and Mrs Armstrong would transfer their shares instead to Kleenmaid Holdings Pty Ltd, which would not be part of the EDIS Group, which would then sell the shares to Kleenmaid Corporate Pty Ltd for an amount approximating $9.5 million.
The letter described the new entities as follows:
- Kleenmaid Corporate Pty Ltd was to be owned equally by two companies, representing respectively the interests of Mr and Mrs Armstrong, and the appellant and his wife.
- LAC was to be the franchisor for all franchised retail stores.
- Lifestyle Appliance Sales was to arrange the sale of new retail franchises.
- Kleenmaid Property Pty Ltd was to hold all property leases.
Under the heading “Inventory Funding” the letter continued:
“With this arrangement comes an obligation to provide inventory for the operation of the business. This inventory falls into two categories:
- Display stock for all non-franchised Kleenmaid retail stores. At present, this stock is provided by Bizco PL in all NSW stores, and by Kleenmaid in its retail stores located in all other states. The value of stock currently provided by Kleenmaid is approximately $3M.
- Warehouse inventory, current value approximately $7M.
The licence agreement with Kleenmaid provides for a fee to be paid to Kleenmaid if it continues to provide this inventory. In the alternative, EDIS has the option of purchasing the stock. In order to eliminate the fee to Kleenmaid, EDIS intends to proceed with purchase of the stock, and requires funding to assist in that process.
I would be guided by you in selecting the appropriate facility or facilities for this purpose. The options for these facilities might include trade finance funding.”
The letter represented that the restructure was “a major development for the EDIS Group, and one which brings opportunities to significantly increase the value of the business.”
In his address to the jury about the September letter, the prosecutor reminded them of the points which he had made in cross-examining the appellant about the document, namely that:
the letter effectively represented that this new EDIS Group would be independent of, and at arm’s length from, other companies which had been in the Kleenmaid group;
the letter represented that the core business was financially successful;
the letter represented that the acquisition of this business was a great opportunity for EDIS; and
missing from the letter was anything relating to the Order House arrangement.
As to (a), Mr Dickson and Mr Growcock from Westpac each testified that he understood the letter to convey that EDIS and the companies in its group would be independent and at arm’s length from other Kleenmaid companies. The letter was addressed to Mr Dickson, and not to Mr Growcock, but Mr Growcock said that the effect of the letter was communicated to him. And in cross-examination, the appellant agreed that the September letter conveyed this representation. There was this evidence in his cross-examination:
“So I think these are things that we probably can agree upon. The first of these is that this letter gives a very clear impression to the reader that the Kleenmaid Group and EDIS were two separate independent arm’s length companies; do you agree with that? – Yes.
Okay. And I suppose this is just a corollary of that, but this arrangement was an arm’s length arrangement that Mr Armstrong was talking about? – Yes.”
As to (b), the appellant did not agree with a suggestion that the September letter indicated that Kleenmaid had “a very strong history and [was] a successful corporation”, but he did concede that the letter indicated that “Kleenmaid has a strong brand and has been doing business for some time, and has a positive customer database and brand awareness.” He agreed that anyone reading the letter would think that Kleenmaid was “a very good business to be associated with”.
As to (c), the appellant agreed that the letter conveyed to any “ordinary reasonable reader” that this was a “wonderful opportunity for EDIS”.
As to (d), the appellant conceded that there was nothing in the document to give the reader any indication of the Order House arrangement.
Mr Armstrong testified that the appellant saw the September letter in draft and requested no changes to it. In cross-examination, the appellant said that he had no recollection of Mr Armstrong showing him a draft of the letter, but that he could not deny that this occurred. He said that he was unable to “remember one way or the other.” Further, on 24 September 2007, the appellant received from Mr Armstrong a copy of the September letter as sent by Mr Armstrong.
On 3 October 2007, the appellant, with Mr Armstrong, met Mr Dickson and Mr Growcock in Sydney, and discussed the proposed loan facilities for EDIS. In evidence-in-chief, the appellant said that he recalled Mr Dickson asking, in what he described as “an embarrassed joking laughing way”, whether the bank was “not going to get to see Kleenmaid’s financials”, to which the appellant and Mr Armstrong responded that the bank would not see them. The appellant was asked “Where did that come from?”, to which he replied:
“It was my understanding from Andrew Young that for any transaction between Kleenmaid and EDIS, relating to himself, that he had never provided Kleenmaid’s financials to Westpac and that would be no different in this circumstanc[e].”
Again in his examination-in-chief, the appellant agreed that he had an involvement in the provision of information to Mr Patane of William Buck, in that he was involved with the preparation of sales forecasts and gross margins and historical figures to be given to him. He said that he also reviewed the overhead structure that was used in the financial modelling to be presented to Mr Patane.
A document was then sent to Mr Patane, which was entitled “Business Plan” and dated “October, 2007”, which, on each page, was expressed to have been prepared by the appellant as the managing director of EDIS. It is very likely that the appellant had not only contributed to its contents, but vetted the document before it went out under his name. The document described the proposed structure for what was to become the Kleenmaid appliance division within the Corporate Group. It represented that EDIS would be involved in each step in the supply of a Kleenmaid appliance or spare part, with only two exceptions: one was that a third party called Bax Global would provide a service in the warehousing and management of inventory under a contract with EDIS, and the other was that Andrew Young would choose the content of the Kleenmaid product range, under a contract between him and EDIS, for a period of three years. The document provided that there would only be these “two phases of the Kleenmaid Appliance life cycle not entirely delivered by EDIS, and these two will always operate under the clear direction of [EDIS] …”. The document made no reference to the Order House arrangement or to the other ways in which, in truth, this new group would be linked to other Kleenmaid companies. Rather, by identifying those two areas in which Andrew Young or Bax Global would be involved, the document represented that the appliance division would be conducted entirely by and within EDIS.
On 7 November 2007, Mr Patane delivered his report to Mr Dickson of Westpac. Mr Patane stated that his report was prepared in reliance upon information provided by EDIS, which he believed was reliable and accurate and for which he had no reason to believe that any material facts had been withheld. An appendix to Mr Patane’s report listed, as the sources of his information, material which included the EDIS business plan dated October 2007 “prepared by Bradley Young”, and a draft of the trademark and intellectual property licence agreement. Mr Patane noted that, in respect of the forecast balance sheets, which had been provided within the business plan under the appellant’s name, Mr Patane had been unable to ascertain the reasonableness of individual line items based on a historical analysis of the prior year, because financial statements had not been provided to his firm. The same comment was made about the forecast cash flow statements within the business plan.
The appellant also provided data about sales and expenses, which was used by Kleenmaid’s accountant, Mr Drake, to prepare financial projections which went to Westpac. In cross-examination, the appellant agreed that he was “a contributor to the process” of looking at drafts of Mr Drake’s projections and making suggestions about them to Mr Drake.
The appellant signed, both for EDIS and for himself, documents with Westpac for this facility. The fact that he did so was and is not controversial, but of relevance is the question of whether, for any of them, he did so in Queensland. By a letter dated 10 October 2007, Mr Dickson of Westpac wrote to the secretary of EDIS, enclosing a proposed Business Finance Agreement. Mr Dickson asked that the “duplicate Business Finance Agreement” be signed and returned as an acceptance of the bank’s finance offer. This letter, together with the Business Finance Agreement, was attached to an email from Mr Dickson to Mr Armstrong on 11 October 2007. That email began by saying:
“Further to our meeting of 3rd October 2007 I have attached our conditional/indicative Letter of Offer in relation to the purchase by [EDIS] Service Logistics Pty Ltd of the appliance division of Kleenmaid Pty [L]td.
The document sets out the facilities as discussed and conditions precedent.”
The email continued with an explanation that an accounting firm would have to undertake a due diligence of the cash flow projections. Mr Dickson there asked whether the “Purchase Agreement” was available at that time, so that it could be shown to Minter Ellison, who were retained by Westpac, for them to review the document for the purpose of drafting a tripartite agreement.
No copy of the unsigned Business Finance Agreement was in evidence. What was tendered was a copy of the document, as signed by those on the borrower’s side, including by the appellant. He signed on page 21 as a director of EDIS. He also signed that page of the attachment which was headed “Drawdown Notice”, which was in the form of a request to Westpac to draw down an amount of $7 million. The drawdown date was left blank, as was the date of the Business Facility Agreement where it was referred to within that page. The appellant and Mr Armstrong also signed, for EDIS, a page headed “Confirmation of Fixed Rate and Drawdown Notice”, where again the drawdown date and the date of the Business Facility Agreement were blank. However, all of the signatures were dated “13/11/07”. The other signatories were Mrs Armstrong (as a guarantor) and Andrew Young for KCS (which was another guarantor).
On the front page of that document as tendered, a bank officer, who was identified as Ms Dixon, recorded an establishment fee of $78,000 being charged on “14/11/07”, and that the “signed original [had been] sighted”. As is said in the appellant’s written submissions, the writing style of the numerals written by Ms Dixon is similar to that of the numerals where, in each case, a signature was dated “13/11/07”. That is one of several facts from which it should be inferred that it was Ms Dixon who inserted that date against each of the signatures.
There was no direct evidence as to when and where the Business Finance Agreement was signed by the appellant. There was evidence that the email from Mr Dickson on 11 October 2007, with its attachment, was forwarded by Mr Armstrong to the appellant and Andrew Young on 15 October 2007. But there is no direct evidence as to what then happened with that document, or more precisely, the duplicate agreement which Mr Dickson asked to be signed in his letter of 10 October 2007.
This Business Finance Agreement, together with those other documents for the initial drawdown of finance, were not the only documents which the appellant signed for the bank. Minter Ellison prepared security documents, comprising what they described as an interlocking guarantee by EDIS, other companies in the Corporate Group, the appellant and Mr Armstrong, together with instruments of fixed and floating charges by those members of the Corporate Group from which Westpac did not already hold a charge. At the same time, Minter Ellison also prepared the Tripartite Deed, between KM Intellectual Reserve Pty Ltd, Kleenmaid Corporate Pty Ltd and Westpac, in order to protect the interests of Westpac in the licence agreement under which the appliance business was to be conducted. Those documents are referred to in a letter from Minter Ellison to Mr Dickson, dated 8 November 2007, in a way which would indicate that Westpac was to have them signed without someone from Minter Ellison being present. However, according to other evidence, these documents were signed at the offices of Minter Ellison in Sydney. Mr Dickson testified that he had a meeting with the appellant and Mr Armstrong “in the offices of … Minter Ellison, when we did a document signup.” The only other meetings with the appellant, which Mr Dickson recalled, were the first meeting with him and Mr Armstrong (the October meeting) and a meeting in late 2008. Not all of the documents prepared by Minter Ellison were in evidence. But on one of them, which was a “Guarantor Acknowledgment”, Mr Young’s signature appears and is dated 8 November 2007. The Tripartite Deed was also in evidence, which was signed by the appellant and which is also dated 8 November 2007.
The fact that all of the security documents, as prepared by Minter Ellison, were signed on 8 November 2007 also appears from an email within Westpac dated 9 November 2007, in which Mr Gupta informed Mr Growcock that “[a]ll security is signed and is in place”, and that “[t]he conditions set out in the prior approval have been met”. On the same day, Mr Growcock replied that, as all of the bank’s security documentation had been executed, settlement could proceed on the following Monday, which was 12 November 2007.
On all of this evidence, it is very unlikely that the Business Finance Agreement had not been signed and returned to Westpac by 9 November 2007. That document was not made redundant by the documents which Minter Ellison had prepared, and it is unlikely that it was overlooked by Westpac until after 9 November 2007. It is also unlikely that those on the EDIS side had not signed and returned the duplicate, as they were asked to do by Mr Dickson’s letter of 10 October 2007. There was no reason for them to delay doing so, and there is no likelihood that they all forgot about it. Further, the blanks which were left in the Business Finance Agreement, as signed by the appellant, suggest that it was not signed by him on 13 November 2007, for otherwise the relevant date in those spaces could have been inserted. More probably than not, Ms Dixon completed the document by inserting “13/11/07” as the date of each signature. As we have said, and as the appellant’s submissions suggested, the handwriting of those dates is similar to the style of Ms Dixon’s writing which appears on the front page of the exhibit.
In our conclusion, it is more probable than not that the Business Finance Agreement was not signed by the appellant in Sydney. It was not a document which had been prepared by Minter Ellison as one of the security documents. Had it been signed with the security documents, it would have been dated 8 November 2007, as each of those documents was. The likelihood is that it was signed by the appellant where he lived and usually worked, which was in Queensland, at some time in the weeks between 15 October and 8 November 2007. Ground 3 of the appeal contends that the question, of where an act by which the offence was committed, should have been left to the jury by a special verdict. We will return to that ground, but at this stage we observe that it was certainly open for the jury to be satisfied that the act of the appellant in signing the Business Finance Agreement, and the documents which were with it, took place in Queensland. For that question, the standard of proof is on the balance of probabilities.
We come now to the principal issue, namely whether it was open to the jury to find, beyond reasonable doubt, that the appellant acted dishonestly. This requires the Court to make its own independent assessment of the evidence, both as to its sufficiency and its quality. But as was said in SKA v The Queen , “[t]he starting point … is that the jury is the body entrusted with the primary responsibility of determining guilt or innocence, and the jury has had the benefit of having seen and heard the witnesses.” Ultimately, the question which the Court must ask itself is whether it thinks that, upon the whole of the evidence, it was open to the jury to be satisfied beyond reasonable doubt that the appellant was guilty.
Although the whole of the evidence must be considered, a challenge to a conviction upon this ground requires more than the identification of evidence which was exculpatory. In general, the jury may accept or reject all or part of the evidence of any witness. Exculpatory evidence need not be accepted by a jury because it is tendered in the prosecution case. Nor is a jury obliged to accept the evidence of the accused person, or to be left in doubt from the accused’s evidence about whether to accept contrary evidence tendered by the prosecution. As Hayne J said in Libke v The Queen :
“[T]he question for an appellate court is whether it was open to the jury to be satisfied of guilt beyond reasonable doubt, which is to say whether the jury must, as distinct from might, have entertained a doubt about the appellant’s guilt. It is not sufficient to show that there was material which might have been taken by the jury to be sufficient to preclude satisfaction of guilt to the requisite standard.”
(Emphasis in the original. Footnote omitted.)
Ultimately, the prosecution put its case to the jury on the basis that the appellant was criminally responsible as a principal under s 7(1)(a) of the Code, so that the alleged offence, as committed by the appellant, was constituted by his own acts and/or omissions. The alleged dishonesty of the appellant was, in essence, by his concealing two things, the first being the true nature of the relationship between EDIS and the Orchard Group Companies, and the second being the precarious financial position of the Orchard Group.
The appellant’s written submissions, however, describe that case in some ways imprecisely, in this paragraph:
“221. It followed that the Crown put its case on the basis that the appellant as a principal offender:
a. Dishonestly concealed from Westpac the true nature of the relationship between EDIS and the Orchard Group companies in that the companies did not, as the defendant through Mr Armstrong indicated, trade at an arm’s length basis, but rather were interdependent with substantial uncollectable intercompany loan accounts; and,
b. Dishonestly concealed the serious debt position of Orchard KLM from Westpac.”
(Emphasis in the original.)
The prosecution case was not limited to the conduct of the appellant “through Mr Armstrong”. And ultimately, it was not the prosecution case that an interdependence between the two groups was concealed; rather it was that the two groups were not independent . At some length, that distinction was explained by the prosecutor in his address to the jury. Further, the prosecution case was that the “precarious financial position of the KM Group”, including “the serious debt position” of that group, was concealed.
For the appellant, it is submitted that the jury could convict the appellant on count 1 only if at least the first of those matters was concealed, that is to say the relationship between EDIS and the Orchard Group. The jury was directed that they might convict if either that relationship or the financial position of the Orchard Group was concealed from the bank. We are inclined to agree with the trial judge in that respect, but the debate on that point is insignificant for the outcome of this appeal, as we will explain.
Later in this judgment, in discussing ground 2 of the appeal, we will trace the course taken by the prosecution through its different statements of particulars of count 1. At this stage, something should be said about the two groups being “interdependent”, as they were described in the particulars as the particulars were at the commencement of the trial. The defence case at the trial was that there was an interdependence, and that this was well known to Westpac, so that there was no concealment of it. Similarly, the appellant’s case in this Court is that it was not open to the jury to find that the relationship between the groups was concealed from Westpac, because that interdependence was well known to it. As we have said, ultimately the prosecution addressed the jury on the basis that what was concealed was a lack of independence, rather than an actual interdependence between the two groups. This debate about independence versus interdependence may not have made things any easier for the jury. Nevertheless, the substance of the prosecutor’s argument, and the relevant evidence in support of it, were sufficiently clear.
Before the restructure, EDIS was a company with the business of providing spare parts for Kleenmaid products. On any view, there was an interdependency between its business and the core Kleenmaid business, which was the supply of new Kleenmaid appliances. If the core business failed, the spare parts business could not continue. In the appellant’s submissions, much is made of evidence from Mr Dickson that he was aware of an interdependent relationship between EDIS and the Kleenmaid Group. It is correct to say that Mr Dickson said that he knew of such an interdependence. It is also correct to say that Westpac had lent money to EDIS, prior to the subject transaction, knowing of that interdependence. More precisely, Westpac had approved a loan facility for Bizco, an EDIS subsidiary, for an amount of $5 million in March 2007. But the subject facility was sought in the context of the restructure, under which the core business was to be conducted by EDIS and its group. The interdependence, as Westpac had understood it, was not relevant after the restructure. Westpac was not being asked to provide $13 million of finance for the spare parts business, reliant as it had been upon the fate of the core business. Similarly, it was not to the point that an intercompany loan account between Kleenmaid Pty Ltd and EDIS had been the subject of a reporting regime to Westpac since 2001, because that related to the circumstances prior to the restructure.
The picture which was presented to Westpac was that the two groups of companies would still have some dealings with each other, but only in certain limited respects. As we have noted, in the document which went to Mr Patane under the name of the appellant, it was represented that it was the Corporate Group which would be involved at all stages in the core business of the supply of Kleenmaid products. A company in the Orchard Group would be paid a royalty and another company would operate some of the retail stores as effectively an agent for LAC. Neither of those agreements or arrangements, without more, would have compromised the autonomous conduct of the enlarged business of the EDIS Group which the bank was asked to finance. As the appellant himself acknowledged in cross-examination, the September letter represented that EDIS and the companies in its group would be independent and at arm’s length from other Kleenmaid companies.
In truth, the two groups of companies were not intended to be conducted independently and at arm’s length from each other. When the appellant was dealing with Westpac, he knew that Westpac was unaware of the Order House arrangement. A knowledge and understanding of this arrangement, he must have known, would have been material, and quite possibly critical, to a decision by Westpac in response to this application for finance. As we have said, the Order House arrangement denied to EDIS the cashflow benefit of having the deposits from customers in its hands, often for many months pending the delivery of the appliances, and exposed EDIS to the risk of never receiving those deposits if the Orchard Group became unable to pass them on. The extent of that benefit, and of that risk, can been seen from the fact that, as McGrathNicol reported in early 2009, an amount of nearly $55 million was to be paid to EDIS under the Order House arrangement. There was evidence that it was the appellant who conceived of this arrangement. There was no apparent benefit to EDIS in the arrangement, in circumstances where it was already paying $5 million per annum for the right to operate the Kleenmaid appliance business, and the Order House company (Kleenmaid Pty Limited) had no logical place in the structure of that business once it was to be in the hands of EDIS and the members of its group.
The lack of independence between the two groups was, perhaps, most starkly illustrated by the fact that the income and expenses of EDIS were paid to and from a bank account or accounts controlled by the Orchard Group, which determined how much would be paid from them. It was open to the jury to exclude any suggestion that this was done for any suggested administrative convenience. The Kleenmaid appliance business was a very substantial undertaking, measured by its turnover, and it is extraordinary that it was not conducted through bank accounts of the entities whose business it was, or was supposed to have been.
Then there was the evidence of other associations between the two groups. The appellant continued to be the secretary of Orchard KM until the end of 2008, and Andrew Young continued to be involved in major decisions for the spare parts business conducted by EDIS.
In deciding whether the appellant acted dishonestly, in obtaining the benefit for EDIS, the jury had to decide whether, at that time, he acted with the knowledge and intent which the prosecution alleged. Events which occurred after the benefit was obtained were not necessarily irrelevant to what the appellant knew and intended at the critical time. The evidence of the ways in which the groups operated in close association, and substantially as the one group, was probative of what, at the critical time, the appellant intended, and knew that his brother and Mr Armstrong intended. Having decided whether the appellant held the belief and intention which the prosecution alleged, the jury then had to consider whether that act was dishonest by the standards of ordinary, decent people. It was unnecessary for the prosecution to prove also that the appellant must have realised that what he was doing was dishonest by those standards.
The appellant’s submissions rely heavily upon parts of the evidence of Mr Armstrong, which is said to have exculpated the appellant. Again, we observe that the jury was not obliged to accept all of his evidence. None of the parts of his evidence upon which the appellant relies had to be accepted by the jury, with the consequence of requiring a rejection of evidence which otherwise could have been accepted by the jury and used to reach a verdict of guilty. Nevertheless, a discussion of some of the passages from Mr Armstrong’s evidence, upon which the appellant relies, is appropriate.
At one point, Mr Armstrong said that the changes to the structure of the businesses were not undertaken specifically to obtain finance from Westpac. The jury did not have to accept that evidence.
Next, the appellant relies upon some evidence from Mr Armstrong about the non-disclosure of the Kleenmaid accounts. Before discussing that evidence, we will set out our views about what the evidence allowed the jury to find. There was evidence from which the jury could have concluded that, in truth, the accounts would have detracted from the case which was presented to Westpac. As we have discussed, there was evidence that the core business of the Kleenmaid companies had not been profitable since at least July 2006, and that the company owned stores were losing approximately $10 million per annum. There was evidence that, by December 2007, Orchard KM had a deficit in its balance sheet of $6.3 million (which may have been understated by $17.6 million). If this accurately represented the position of the Kleenmaid companies, and the health of its core business, it was clearly open to the jury to conclude that the appellant knew of it and decided not to reveal it to Westpac. The explanation which was given was that Andrew Young, as the individual who would control what would become the Orchard Group after the restructure, would not agree to its disclosure to Westpac. But in truth, there was not to be the disassociation between the two groups that Westpac was being made to understand. The finance which was being obtained, ostensibly for the benefit of an independent EDIS group, was being obtained for the benefit of both groups. It was open to the jury to conclude that the appellant knew that there was no legal impediment to his disclosing the truth about the performance of the core business, and that he pretended to Westpac that, by reason of the separation of the two groups through the restructure, he was unable to procure a necessary permission for the disclosure of this information. In short, it was open to the jury to conclude that, dishonestly, he concealed from Westpac the precarious financial position of the Kleenmaid companies.
The appellant relies upon this passage from the evidence of Mr Armstrong, under cross-examination by the appellant’s trial counsel:
“EDIS was the organisation applying for the loan. The bank employed hundreds of analysts to ask the right questions – ask what they considered to be the right questions and – and every question that Westpac asked, and there would have been many of them, were answered. And – and this one particular piece of information, which was the financials for Orchard – the answer was – was no, you – they won’t be forthcoming. And – and Westpac – I’m probably jumping ahead of it here, but Westpac made a decision to proceed with the loan in the absence of that information that they had requested.”
The apparent relevance of this evidence, for which the appellant argues, was that there was no dishonest concealment of material facts because Mr Armstrong and the appellant were entitled to assume that, if Westpac was not insisting upon the provision of the information, then it could not have been material. That argument should be rejected for reasons which we have just expressed.
The appellant relies on passages from the evidence of Mr Gupta, whom we have already mentioned and who was an analyst employed by Westpac. The appellant points to evidence of a table of “Inter Entity & Other loans as [at] March 31 2008” for the “EDIS Group of Companies”. Mr Gupta’s evidence was that this was within information which he had then requested from Mr Janif of EDIS, and which Mr Janif provided to him on 19 June 2008. The fact that this information was provided to the bank at that time, when EDIS was seeking further finance from Westpac, said little about what had been withheld from the bank at the critical time, which was in the previous year. Mr Gupta then saw fit to discuss this information with Mr Dickson, and Mr Dickson then raised it with the appellant, asking for confirmation that the amount owed by Orchard KM was recoverable. EDIS sought to answer Mr Dickson’s concerns by an email from Mr Armstrong to him of 23 June 2008 which began:
“Brad [the appellant] updated me on your call on Friday evening. I understand that you would like to confirm that the account owed by Orchard is recoverable. ….”
It was in that email that the Order House arrangement was first explained to Westpac.
Reference is made to evidence by Mr Gupta that, in October 2007, he was aware that there would be an inter-company loan account between EDIS and a company in the Orchard Group, involving standard commercial trading terms of payment within 30 days from the end of a month. This was the subject of an email from Mr Armstrong to Mr Dickson (copied to Mr Gupta) on 2 October 2007. But that did not reveal to Westpac the association which was intended between the two groups, and in particular, the Order House arrangement.
The appellant refers to evidence given by Mr WJ Harris, a chartered accountant, employed by McGrathNicol, who expressed an opinion that there were indicia both for and against the existence of an arm’s length relationship between the two groups. However, Mr Harris there said that he was referring to “one issue” and “one part of the relationship, not the entire trading relationship”, and added that single aspect “could be an indicia, but it’s not conclusive.”
Mr WJ Wessells was a chartered accountant who worked as one of the auditors of the Kleenmaid Group in 2007 and 2008. He gave evidence that he did not consider that the two groups were related parties, as defined by the relevant accounting standards. But he was then asked by the appellant’s counsel whether it was his view that the two groups did trade at arm’s length, to which he answered:
“Certainly post – post the restructure there was … evidence to indicate that there was [sic] attempts made to separate the activities of the respective organisations and – well, nothing comes to mind to indicate that there was any non-arm’s length transaction or arrangements in terms of sales and purchases.”
That evidence did not require the jury to reject the prosecution case, which was that the groups were not intended to be independent and deal with each other at arm’s length.
The appellant also refers to evidence by a Ms King, who was employed as an accountant for Kleenmaid Pty Ltd between January 2007 and February 2008. She gave evidence that the balance sheet for the Orchard Unit Trust as at 1 July 2007 showed total assets of approximately $87 million and net assets of approximately $3.4 million, the profit and loss statement for Kleenmaid Pty Ltd for the 12 months ending 30 June 2007 showed a net profit of approximately $4.4 million, and the financial reports for Kleenmaid Pty Ltd were in general accurate, truthful and reflected correctly the position of the entities which were described in them. But the jury was not obliged to accept her evidence. Rather, the jury were entitled to prefer the evidence of Mr Hughes, that the Kleenmaid companies had been unprofitable since at least July 2006 and that the companies were losing approximately $10 million per annum.
The appellant’s submissions extensively refer to the appellant’s evidence at the trial, in support of the argument that the verdict on count 1 was unreasonable. Again, the jury was not obliged to accept any of his evidence, or to regard it as raising a doubt about the evidence upon which the prosecution case relied. However, some parts of his evidence, upon which this argument now relies, should be discussed.
He testified that he understood that the two groups were interdependent, in that EDIS relied on Orchard KM for the use of the Kleenmaid brand, so that if Orchard KM did not exist, EDIS would have been out of the appliance business. That was an apparent reference to the licence agreement, under which EDIS was able to use the Kleenmaid name and relevant trademarks. All of that was known to Westpac, and the prosecution case did not suggest otherwise.
The appellant testified that the Order House arrangement was set up to protect the brand. He said that the arrangement was because “Kleenmaid needed to ensure that at all times it had control over customer orders and particularly the receipts of cash against those orders.” If it is assumed that this was the appellant’s purpose, in conceiving of the Order House arrangement, it did not answer the prosecution case that it was an element, and an important element, of the ongoing association between the two groups which was concealed from Westpac. Rather, the appellant’s explanation was effectively an admission that, in truth, EDIS was not to become the operator of the appliance business.
In our conclusion, it was open to the jury to find that the appellant was guilty of count 1. In particular, it was open to the jury to find that he acted dishonestly, by concealing from Westpac the true nature of the relationship between the two groups, in that they were not independent and trading at arm’s length, and by concealing from Westpac the precarious financial position of the Orchard Group, including its serious debt position. Those two subjects, of course, were related. In combination, their consequence was that the overall risk to Westpac from providing this finance was markedly different from that which was represented to it.
Ground 1 of the appeal: a change to the basis of criminal responsibility
Prior to the commencement of the trial, the prosecution provided particulars in a document which was marked for identification as “E”. That document provided particulars under three headings. The first was “What benefit was gained”, the second was “How the benefit was dishonestly gained”, and the third was described as “Material facts in support of the allegation that the benefit was dishonestly gained”. The same particulars were advanced against all three accused (as they then were). Under the first heading, the alleged benefit was described as “Business Finance Facilities totalling $13M from Westpac for EDIS service logistics Pty Ltd” for certain purposes corresponding with the terms of the Business Finance Agreement.
Under the second heading, the particulars were as follows:
“The benefit was dishonestly gained because all three directors knew that given the precarious financial position of the KM group, the only way the business could continue was to obtain a cash injection from a financial institution, and the only way they could obtain such finance, was to seek to obtain funding through an applicant entity which was not encumbered by the substantial debts of the group. Consequently, with the knowledge of all three defendants, funding was sought from Westpac via EDIS. All three defendants at that time:
were complicit in concealing from the bank
the true nature of the relationship between EDIS and the Orchard group companies, in that the companies did not, as the defendants represented, trade at an arms length basis but rather were interdependent with substantial uncollectable intercompany loan accounts;
the serious debt position of the Orchard group, in particular Orchard KM Pty Ltd;
knew that it was intended that the borrowed moneys not be used for the stated purpose, but rather to retire the debts of the Orchard Group.”
It can be seen that those particulars alleged that the three defendants were “complicit in concealing from the bank” certain matters. On the first day of the trial, the prosecution opened its case to the jury by saying that the offence charged by count 1 was “the product of a lengthy tactical and … dishonest joint campaign by the directors.” The prosecution had previously advised the defendants that it would be conducting its case in reliance upon the principles in Tripodi v The Queen.
On day 53 of the trial, the prosecution advised the Court (and the appellant) that it no longer relied on the co-conspirators’ principle from Tripodi, but that it would rely upon evidence apparently admitted under that principle on the basis that conversations between Andrew Young or Mr Armstrong with others (in the absence of the appellant) were admissible as circumstantial evidence relevant to facts in issue.
“In terms of the way in which count 1 has been particularised, in my submission, the reliance is almost solely on section 8 of the Queensland Criminal Code. … So in terms of the reliance upon section 8, as the case has ensued, essentially, it has focused on the joint purpose as between – or the complicity as between Mr Armstrong and [the appellant]. Because Mr Andrew Young became no longer a party to this trial, there has not been any significant reliance on any of the actions that he took.”
The trial judge then queried whether the appellant could be made criminally responsible under s 8, when the obtaining of the benefit for EDIS had been put forward as both the unlawful purpose of the defendants and the offence which was committed. His Honour then adjourned, saying that the prosecution would have to “place very clearly on the record the basis upon which the Crown case rests”.
When the Court resumed, senior counsel for the prosecution handed up a document, which was marked “N” for identification, of which he said that “in very short compass the defendant is proceeded against with regard to count 1 and with regard to counts 2 to 19 as a principal offender.” According to that document, the prosecution case on count 1 was as follows:
“1. In respect of count 1, the conduct is obtaining the loan from Westpac for EDIS, dishonestly.
- The Crown case against the defendant is as a principal offender, that is, a s. 7(1)(a) case.
- The Crown relies on various acts and omissions of the defendant such as coming up with the idea for the loan as an objective of the restructure; agreeing with Armstrong and Andrew Young that EDIS apply for a loan; agreeing that there be a presentation to the Bank; approving the letter to the Bank, beforehand; attending meetings with the Bank; failing to contradict the representations in the letter; failing to contradict Armstrong’s oral representations at meetings; preparing the business plan document; signing the bank’s letter of offer; signing guarantees; signing the loan documents on behalf of EDIS.
- The Crown relies on the evidence set out in the schedule prepared by defence because it is relevant as part of the surrounding circumstances which tend to prove the accused’s guilt of the offence.”
Later that day, the trial judge ruled on the application to exclude the conversations between the co-conspirators and others. His Honour noted that, although it was unusual for such an application to be made, as it had been, at the close of the prosecution case, this was “a result of the Crown having indicated at the start of or prior to the commencement of the trial that it would be submitting that such statements are admissible against the defendant pursuant to the co-conspirators rule as enunciated in Tripodi …”. His Honour noted that the defendant had not sought a mistrial, and instead had submitted that the judge should direct the jury that they were not to consider the evidence in question when arriving at their verdict. However, the judge accepted the submission for the prosecution that this evidence was admissible, not under the Tripodi exception to hearsay evidence, but as evidence of circumstances which were probative of a fact in issue. He rejected an argument that the evidence should be excluded in the exercise of a discretion, saying that in his view, there would not be any unfair prejudice arising from that evidence being before the jury. At the same time, having heard argument on the question, he rejected a no case submission about count 1.
The correctness of his Honour’s ruling as to the admissibility of this evidence is not challenged in this Court. Rather, by this ground of appeal, it is submitted that the change in the prosecution case, as to the basis of criminal responsibility, caused a miscarriage of justice.
It is submitted that the prosecution “failed to identify with any degree of precision which acts of the appellant were those which amounted to him having committed the offence”, given that it was only those acts or omissions which were able to be attributed to the appellant as a principal offender which could found the basis of liability under s 7(1)(a). That submission cannot be accepted. As the case was argued to the jury, the acts and omissions of the appellant were fairly and sufficiently identified, as we have set them out above at .
It is submitted that after the prosecution had apparently confined its case to s 7(1)(a), the prosecutor continued to use the language of joint criminal enterprise and/or accessorial liability, which was likely to have confused the jury. The submission refers to an argument to the jury that the appellant had edited the business plan, which went to Westpac via Mr Armstrong, as indicative of a case that the appellant was criminally responsible for the act of Mr Armstrong, rather than for his own act or omission. In our view, that misstates the prosecution case, which was that one of the things which the appellant did, by which the benefit was obtained, was to edit that document which went to Westpac under his name.
In the same way, the appellant argues that the jury would have been confused by the prosecutor’s statement to the jury as follows:
“Now, still – we’re still on the subject of Mr Young being a party to … representations which were made to the bank”.
And in the same way, the appellant relies upon the prosecutor’s statement to the jury that the document which the appellant had edited was given to the bank “with the authority” of the appellant, so that “the actual making of those representations [was] something that Mr Young was a party to and responsible [for]”. We would accept that, taken alone, those two statements would indicate a case of criminal responsibility for the acts or omissions of Mr Armstrong, rather than a case for responsibility for the appellant’s own conduct, according to s 7(1)(a). However, the question is whether, overall, the case was presented to the jury with such a lack of clarity that the jury may not have understood the facts which they were being asked to find in order to convict the defendant.
It is argued that the problem for the jury was compounded by the directions of the trial judge. The argument refers to his Honour’s direction that, in support of the case that the defendant gained the alleged benefit for EDIS, there was certain conduct of the defendant, namely that:
- “the defendant knowingly participating in the loan application …”;
- “the defendant attended [the] meeting on 3 October 2007”;
- “the defendant provided data re expenses for the projections prepared by Robert Drake for the bank”; and
- “the defendant signed the letter of offer [and] guarantee”.
It is argued that those directions failed to direct the jury’s attention to the now critical requirement that the Crown case was limited to the appellant’s own acts. We are unable to accept that submission. In each case, the trial judge referred to acts of the appellant. To say that the appellant was “participating in the loan application” was to say that the appellant, and at the same time Mr Armstrong, were doing things by which the benefit was ultimately obtained.
In our conclusion, the jury could not have misunderstood the prosecution case as to what acts and omissions constituted the offence charged against him by count 1. The acts were those clearly described by the prosecutor as we have set out above, and the omissions were the concealment of the true relationship between the two groups of companies and the true financial position of what became the Orchard Group. This ground of appeal must be rejected.
Ground 2: the directions about the particulars for count 1
By this ground, it is argued that there was a miscarriage of justice by the way in which the trial judge, of his own motion it is said, expanded the particulars for count 1, after the closing addresses of counsel. There was a miscarriage of justice, it is submitted, because this expanded the paths to conviction in a way which had not been litigated.
We have set out above at  and  the particulars which were provided by the prosecution before the commencement of the trial. Of present relevance is what was said under the heading “How the benefit was dishonestly gained”. On day 69 of the trial, before counsel had addressed the jury, the prosecution abandoned the particular within (b), namely the allegation that the appellant knew that it was intended that the borrowed monies not be used for the “stated purpose”, but rather to retire the debts of the Orchard Group. The “stated purpose” was a reference to the several purposes for the different facilities, totalling $13 million, as set out in the Business Finance Agreement (and the same purpose referred to in those particulars under the heading “What benefit was gained”).
Further, it is submitted, with some justification, that the prosecution case also changed when the prosecutor told the jury that “the bank always knew that there was interdependence and no one in this case has ever suggested, to the contrary, that the bank didn’t know.”
After both counsel had addressed the jury, the trial judge discussed with counsel aspects of his proposed summing up. His Honour said:
“[C]an I just make sure that I’ve understood the features of the particulars of the dishonesty that the Crown relies upon … . And what I had noted [were] these – that, one, the defendant concealed the true nature of the relationship between EDIS and Orchard, and that the companies did not, as was represented to the bank, trad[e] at an arm’s length basis, but rather were dependent, and had [substantial] uncollectable intercompany loan accounts, and were, effectively, operating as the one business. Two, the serious debt position of the Orchard group was concealed from the bank. Particularly Orchard KM. [Three] but the letter on the 14th of September implied or conveyed that Kleenmaid had been financially successful and that the proposed deal was an excellent opportunity, and that the defendant knew that to be untrue. [Four], the letter gave no indication of the [O]rder [H]ouse arrangement, and that the defendant was aware that it failed to do so and didn’t correct it.”
It is submitted in this Court that the matter of the September letter, and what it said about the financial success of the Kleenmaid business, and what it did not say about the Order House arrangement, were particulars which were added to the prosecution case by the trial judge.
At that point of the trial, there was an objection by defence counsel about particulars. Defence counsel submitted that the prosecution argument that the financial projections were inaccurate went beyond the particulars of its case. Defence counsel conceded that this was “something that’s emerged through the evidence”, and which was “obviously disputed”. His Honour observed that it had emerged “in the evidence a very long time ago”, well before the appellant gave evidence, and there had been “every opportunity to address that issue”. His Honour said that he had appreciated that it was something to be relied upon, but he had simply failed to note it down in the notes from which he had been reading in setting out his understanding of the prosecution case. His Honour commented that there had been no unfair prejudice to the appellant, given the length of time that had elapsed since that question first emerged. But nothing was said by defence counsel about the way in which the particulars were to include the September letter, and what that letter said and concealed. Therefore, the appellant’s submission that there was an objection by defence counsel to those “additional” particulars is incorrect.
The summing up extended over three days. On 3 August 2016, the trial judge told the jury that the prosecution relied upon particulars of dishonesty, substantially in the terms of the four things that his Honour had foreshadowed with counsel, in the passage which we have set out at .
Two days later, in the absence of the jury, the trial judge said to counsel that he had been giving further consideration to the particulars of the prosecution case, as originally provided in the document which had been marked “E”. He said that the particulars also included everything which had been set out, over several pages in that document, under the heading “Material Facts in support of the allegation that the benefit was dishonestly gained”. He asked counsel to consider whether the particulars of dishonesty, which he had expressed by reference to the September letter, were within that part of the document which had been marked “E”. After a short adjournment, senior counsel for the prosecution referred his Honour to parts of the particulars, under that heading, which referred to the September letter. The trial judge then said that “out of an abundance of caution, I think the fair option would be to direct the jury that they would need to be satisfied of either particulars 1 or 2 … before they could convict”, adding that “all four remain particulars”. Defence counsel simply maintained what had been his position about the particulars, offering no submission as to his Honour’s latest proposal.
The jury then returned and his Honour continued his summing up. He reminded the jury of “the first two” particulars of dishonesty as being:
“The defendant concealed the true nature of the relationship between [EDIS] Service Logistics and the Orchard Group companies, and that the companies did not, as was represented to the bank, trade at an arm’s length basis, but rather were dependent and had substantial uncollectable intercompany loan accounts and were effectively operating as the one business. Two – the serious debt position of the Orchard Group, particularly Orchard KM Pty Ltd, was concealed from the bank.”
His Honour then reminded them of the third and fourth particulars of dishonesty, which were those about which the appellant now complains, namely that the September letter “implied or conveyed that Kleenmaid had been financially successful and that the proposed deal was an excellent opportunity for EDIS and that the defendant knew this to be untrue”, and that the September letter “gave no indication of the Order House arrangement and that the defendant was aware that it failed to do so and that the defendant failed to correct that omission.” The trial judge then said to the jury that, in order to convict on count 1, they had to go further than finding that at least one of those four particulars was established.
His Honour told them that he was amending what he had directed earlier, and that they should now understand that, in order to convict on count 1, they would have to be satisfied beyond reasonable doubt that at least one of the first and second particulars had been proved. His Honour then added:
“All four remain particulars, but if you had a reasonable doubt about particular 1 and you had a reasonable doubt about particular 2 you could not conclude that the element of dishonesty had been proved based on particulars 3 and 4, even if you were satisfied that that had been proved. So you need to be satisfied unanimously in relation to particular 1 or particular 2, or of course both of them, or you might be satisfied that all four particulars have been proved.”
The appellant submits that this still left the so-called additional particulars, described as particulars three and four by the trial judge, for the jury’s consideration, when they had not been part of the prosecution case.
In our view, this submission cannot be accepted. The September letter, and its significance as described in the judge’s third and fourth particulars, were strongly argued by the prosecutor in his closing address. Its relevance and indeed importance, to the prosecution case, had always been clear. Ultimately, the use which could be made of it was fairly described in the summing up. It cannot be concluded that the judge changed the case to be considered of his own motion, and after counsel had addressed the jury.
What we have said is sufficient to dispose of the second ground of appeal. But in the submissions of the appellant under that ground, there appears to be a further complaint about the summing up.
This further submission focusses upon the two steps to be undertaken by the jury, in considering whether the defendant had acted dishonestly. The first was whether the defendant held a certain knowledge, belief or intent, as alleged by the prosecution, and the second was whether what the defendant did was dishonest by the standards of ordinary, honest people. It is submitted that the case was left to the jury on the basis that the so-called “additional” particulars (those described by the judge as the third and fourth particulars), could be used by the jury for both “the anterior question of knowledge, belief or intent”, and not as to “dishonestly”. It is submitted that these particulars were relevant only to the second step for the jury (whether what the defendant did was dishonest by the standards of ordinary, honest people) and not to the first step (whether the defendant had a certain state of mind), and the jury may have been misled to think otherwise. This submission is unpersuasive. We see no reason to doubt that the jury understood the use with which, not inappropriately, the prosecution was seeking to make of the September letter, which was that the appellant’s approval for the letter to be sent was dishonest, because he knew the significance of what the letter represented, and what it did not disclose.
Ground 3: the absence of a direction as to the locality of the offence in count 1
By this ground, it is contended that the trial judge “erred in failing to direct the jury as to the need for the offence in count 1 to have been committed in Maroochydore in the State of Queensland.” However, as the ground was argued, it was more a complaint that the jury was not directed about the need for the act or omission, or one of the acts or omissions, which constituted the offence by the appellant, to have occurred in Queensland.
No direction was given by the judge as to the locality of the offence in count 1. Neither counsel suggested to the trial judge that such a direction should be given. Counsel for the respondent to this appeal argues that this is the end of the matter, and that it was unnecessary for the prosecution to prove that any offence occurred in Queensland. That submission is based upon this passage from the judgment of Brennan J in Thompson v The Queen :
“In other words, if the charge alleges the commission of an offence against the law administered by the court (the law of the forum), the court has jurisdiction to hear and determine the charge, but when an issue is raised as to the locality of the offence the jury may have to decide the issue in order to determine whether the conduct charged falls within the territorial ambit of the law of the forum. Locality then becomes a fact on which liability to conviction depends.”
In the same case, Mason CJ and Dawson J said that it will be desirable to seek a special verdict upon the issue of jurisdiction “if it is raised”.
The respondent’s submission is inconsistent with at least one case on appeal in Queensland. In R v Hildebrandt, it was held that a failure by inadvertence to object at the trial to a lack of “jurisdiction” was not fatal to the point being raised on appeal.
In Thompson , there was a question of whether, in the terms of s 25 of the Crimes Act 1900 (NSW) as amended to apply to the Australian Capital Territory, the death of two women, or the cause of their deaths, had occurred in the Territory, so that the Supreme Court of the Australian Capital Territory had jurisdiction to try the appellant for their murder. The trial judge declined to seek a special verdict from the jury on that issue, but directed them that they could not convict the accused unless they were satisfied beyond reasonable doubt that the deaths had occurred within the Territory. A majority of the High Court held that the standard of proof applicable to the establishment of the jurisdiction of a criminal court is the civil standard. Mason CJ and Dawson J expressed some doubt that the evidence established, beyond reasonable doubt, that the deaths occurred in the Australian Capital Territory, but considered that on the civil standard of proof, the preponderance of evidence favoured the conclusion that the deaths did take place in the Territory.
We do not accept that the passage from the judgment of Brennan J, in this case, which is relied upon by the respondent, should be given the effect which is attributed to it. When Brennan J said that a jury may have to decide an issue as to the locality of an offence when that issue is raised, his Honour did not confine that to where the issue was raised by the accused person. Rather, Brennan J was referring to a case where the issue was raised by the evidence, such that there was a real, and not merely a theoretical question, as to the locality of the offence for the jury to consider.
The appellant argues that the trial judge should have directed the jury as to the need to be satisfied about the “locality” of the offence in order to convict the appellant on count 1. It submitted that it was necessary for the prosecution to prove, on the balance of probabilities, “that the offending alleged in count 1 took place in Queensland”. Further, although the ground of appeal complains that the jury was not properly directed, the appellant’s argument goes further, contending that the prosecution was unable to prove, on the balance of probabilities, that the offending did take place in Queensland, with the result that, even for that reason alone, the verdict of guilty on count 1 was unreasonable and a verdict of acquittal should be entered by this Court.
The appellant’s argument accepts that the question of locality, which ought to have been put to the jury, was one to be answered according to s 12 of the Code which relevantly provides as follows:
“12 Application of Code as to offences wholly or partially committed in Queensland
(1) This Code applies to every person who does an act in Queensland or makes an omission in Queensland, which in either case constitutes an offence.
Where acts or omissions occur which, if they all occurred in Queensland, would constitute an offence and any of the acts or omissions occur in Queensland, the person who does the acts or makes the omissions is guilty of an offence of the same kind and is liable to the same punishment as if all the acts or omissions had occurred in Queensland.
Where an event occurs in Queensland caused by an act done or omission made out of Queensland which, if done or made in Queensland, would constitute an offence, the person who does the act or makes the omission is guilty of an offence of the same kind and is liable to the same punishment as if the act or omission had occurred in Queensland.
Where an event occurs out of Queensland caused by an act done or omission made in Queensland, which act or omission would constitute an offence had the event occurred in Queensland, the person who does the act or makes the omission is guilty of an offence of the same kind and is liable to the same punishment as if the event had occurred in Queensland.
By s 2 of the Code, an act or omission which renders the person doing the act or making the omission liable to punishment is called an offence. In R v Barlow , Brennan CJ, Dawson and Toohey JJ said that s 2 makes it clear that “offence” is used in the Code to denote “the element of conduct (an act or omission) which, if accompanied by prescribed circumstances, or if causing a prescribed result or if engaged in with a prescribed state of mind, renders a person engaging in the conduct liable to punishment”. As we have discussed, the prosecution case, ultimately, was that there were several acts by the appellant which constituted the offence, in that from those acts he was liable to punishment, when accompanied by the result that a benefit was obtained for EDIS and with the prescribed state of mind, namely that he acted dishonestly.
As we have said, those acts were listed by the prosecutor, in his closing address to the jury, as:
- The appellant’s attendance at a meeting with Mr Growcock and Mr Dickson of Westpac on 3 October 2007.
- The appellant’s editing of a business plan, which was presented to Mr Patane.
- The appellant’s provision of data about the sales and expenses of the core Kleenmaid business.
- The appellant’s signing the letter of offer from Westpac, which constituted the agreement for the facilities, as well as a guarantee of the facilities.
- The appellant’s approval of the terms of the September letter.
Of those five acts, clearly the first of them occurred in New South Wales. We have not yet discussed the location of the second, third and fifth of those acts. As to the September letter, we would hold that it was more probable than not that the appellant approved its terms by conduct in Queensland. Both the appellant and Mr Armstrong worked from Kleenmaid’s premises in Queensland, and there is no evidence which indicates a real, rather than a theoretical possibility, that the appellant was outside Queensland when he approved the terms of the letter. Further, there was evidence of a meeting between the appellant, his brother and Mr Armstrong on 7 September 2007 about which the appellant sent an email to them asking for a meeting at 2 pm on that day “to cover off on the following [subjects]” which included “Westpac presentation/information/date of presentation”.
As for the editing of the business plan and the provision of data to Mr Drake, again there is no evidence indicating a real possibility that the appellant did that work from outside Queensland. EDIS and Kleenmaid Pty Ltd shared common corporate headquarters in Maroochydore.
As we have said above, it is more probable than not that the Business Finance Agreement was signed by the appellant in Queensland, rather than in Sydney. And as to whether the verdict was unreasonable, on the basis of locality, it is sufficient for us to conclude, as we have, that it was open to the jury to be satisfied that the act took place in Queensland. On any view, the act of signing the agreement was itself an act by which, accompanied by the result of a benefit to EDIS and the dishonesty of the appellant, rendered the appellant liable to punishment under s 408C of the Code .
In our opinion, it is s 12(2) of the Code which is critical to this question. We have concluded that at least one of the relevant acts did not occur in Queensland. However, if at least one of those acts, if proved by the prosecution to have occurred, was an act which occurred in Queensland, then the appellant could be convicted of the offence with which he was charged.
No direction, as to the locality of this offence, was sought at the trial, so that the appellant must establish that there was a miscarriage of justice, in that a failure by the trial judge to request from the jury a special verdict on the question deprived the appellant of a chance of an acquittal on this basis.
The jury could have convicted the appellant by concluding that some, although not all, of those five acts did occur. But there was no issue as to the occurrence of the act of signing the agreement with Westpac. As we have concluded earlier, not only was it open to the jury to find that this act occurred in Queensland, the preponderance of evidence was that the act did occur in Queensland. Consequently, we are not persuaded that the appellant was deprived of the chance of an acquittal on this basis. Ground 3 of the appeal must be rejected.
Ground 4: Severance was wrongly refused
In a pre-trial application heard on 25 June 2015, the appellant objected to the joinder of count 1 with counts 2 to 19 on the basis of the charges not being founded on the same facts, or a series of offences of the same or similar character, or a series of offences committed in the prosecution of a single purpose. It was also argued there was real prejudice to the appellant in count 1 being heard together with counts 2 to 19. The judge who heard the application (who was not the trial judge) dismissed the application on 21 July 2015. In subsequent reasons given on 7 April 2017, that judge explained that he had “accepted, by and large, the submissions on behalf of the Crown, both in the written outline of argument and in oral argument on 25 June 2015”. At the pre-trial hearing, the then prosecutor submitted that the evidence relating to counts 2 to 19 was admissible as post-offence conduct in relation to count 1. The prosecutor had also relied on financial mismanagement, as “the unifying sub-stratum of the case” admissible in respect of count 1 and as relevant to the finding of suspicion of insolvency for counts 2 to 19. After the completion of the evidence at the trial, the prosecution abandoned reliance on the evidence relating to counts 2 to 19 as post-offence conduct in respect of count 1.
The issues raised by this ground are:
whether the joinder of count 1 together with counts 2 to 19 was improper; and
if so, whether a substantial miscarriage of justice resulted from the improper joinder.
The appellant submits that proof of counts 2 to 19 did not contribute to the proof of count 1 and there was an insufficient nexus for all charges to proceed on the one indictment, although the appellant’s counsel concedes that some of the evidence in relation to the loan of $13 million from Westpac and its dissipation in the course of the restructure was admissible in relation to the question of actual insolvency that was relevant to counts 2 to 19. It is also submitted that for count 1 the prosecution case involved dishonestly benefiting a company that was solvent, but for counts 2 to 19 it was a case of dishonestly trading while insolvent. The respondent submits the latter assertion ignores the fact that count 1 occurred at a time when EDIS was in a precarious financial position and the evidence which established the financial state of EDIS leading up to the loan application (and the appellant’s knowledge of that) was relevant to establishing counts 2 to 19. The respondent submits that it might not be the same dishonesty, but the conduct throughout was motivated by the same circumstance which was the financial position of the business and a desire to keep it operating. The respondent therefore submits the financial situation of EDIS supplied the motive for both the fraud and the insolvent trading, the declining financial state of the business was at the heart of all counts, and the commission of count 1 was relevant evidence of the appellant’s dishonest state of mind in relation to the trading while insolvent that was the essence of each of counts 2 to 19.
Although count 1 was a different offence to counts 2 to 19, the existence of some connection or nexus between them that was covered by s 567(2) of the Code would permit the joinder of count 1 with counts 2 to 19. As was observed in the joint judgment of McPherson JA and Lee J in R v Collins , ex parte Attorney-General :
“In defining in broad terms what connection is sufficient for this purpose, an examination of the cases demonstrates that an appropriately liberal reading be given to the text of the section, consistent with its underlying policy. That policy … is to enable the joinder of charges which may be ‘properly and conveniently’ dealt with together …”
The parlous financial position of the business was the underlying theme of both count 1 and the insolvent trading counts and was, arguably, sufficient connection to permit the joinder of all counts on the one indictment. In addition Westpac was identified as the defrauded party for the purpose of count 1 and was also the creditor identified in each of counts 2 and 3. Once it is accepted (as the appellant’s counsel appropriately did) that, even if the joinder were not permitted, that evidence relating to the transaction that was the subject of count 1 was admissible in relation to counts 2 to 19, no substantial miscarriage of justice could have resulted from the joinder of count 1 with counts 2 to 19. This ground cannot succeed.
By this ground, it was contended that the appellant was denied a fair trial as a result of a failure by the prosecutor to disclose relevant evidence prior to the trial. This ground was abandoned at the commencement of the appellant’s oral argument.
Ground 6: Failure to direct on expert evidence
The appellant’s complaint is that, when the trial judge gave the usual direction as to the evidence of expert witnesses, he did not identify Mr Wessels as one of the expert witnesses.
The appellant’s counsel at trial made no request for Mr Wessels to be included in the expert evidence direction, after the trial judge had been provided by the prosecutor with a list of the expert witnesses to whom it was submitted the expert evidence direction should refer and the trial judge invited counsel to bring any further expert witnesses to his attention.
Mr Wessels was an audit partner at PKF in 2007 and 2008 who supervised the employees who worked on audits of the Kleenmaid companies. Mr Wessels did not do the detailed audit work, but was responsible for signing off on the audits. For the year ended 30 June 2007, that included EDIS, Bizco and KCS. PKF was engaged to audit Kleenmaid Corporate Pty Ltd in 2008 which involved looking at the financial reports of all the entities owned by Kleenmaid Corporate Pty Ltd. PKF was not appointed as auditor of the Kleenmaid Holdings Group or the Orchard Group during 2007 and 2008. Mr Wessels had no contact with the appellant. Mr Wessels also did a solvency audit under the Franchising Code for LAC. The prosecutor at the trial took Mr Wessels to various documents for him to identify them as documents that he had seen at the time of an audit or working papers that were created as part of an audit and to explain the steps that were undertaken as part of the audit process.
The appellant’s trial counsel cross-examined Mr Wessels to elicit further information about the audit process. As we have discussed earlier, Mr Wessels stated that he did not consider the Corporate Group and the Holdings Group to be related parties as defined by the accounting standards.
In re-examination, Mr Wessels confirmed that he did not see any documents from the Orchard Group.
The appellant’s counsel at trial reminded the jury in his closing address about the opinions that Mr Wessels expressed in the course of his evidence that during the audits, he did not consider the two groups to be related parties as defined by the accounting standards and considered the Corporate Group and the Holdings Group to be interdependent and trading at arm’s length.
On this appeal, the appellant’s counsel relies on the evidence of Mr Wessels as being expert opinion that the Corporate Group and the Orchard Group traded at “arm’s length”, relying on the passage we have set out at , and which was referred to by the appellant’s trial counsel in his closing address as the evidence of an expert accountant that could be compared and contrasted with the other accountants involved.
The appellant submits there was a genuine risk that the jury would conclude that the omission of Mr Wessels from the category of expert witnesses meant his opinions were not of the same quality or character as those whose names were included in the direction and more likely to put his opinions to one side on the basis he was not an expert.
In response, the respondent points out that it was apparent in re-examination that Mr Wessels did not have access to any records from the Orchard Group at the time that the audits were undertaken. He therefore had less information on which to form an opinion than the information presented at the trial. The respondent also relies on the fact that there is no criticism otherwise of the trial judge’s summing up of Mr Wessels’ evidence.
In the summing up, the trial judge referred to Mr Wessels’ opinion as the auditor that he did not consider the Corporate Group and the Orchard Group to be related parties, although he considered they were interdependent. The trial judge accurately and fairly summarised the other opinions of Mr Wessels that were relied upon by the appellant at the trial, without in any way suggesting that Mr Wessels’ opinions were not evidence. The trial judge merely noted Mr Wessels’ evidence that PKF had no involvement with the Orchard Group (which was a factual matter that was relevant in considering Mr Wessels’ evidence).
A perusal of all Mr Wessels’ evidence shows he was primarily expressing his views on the scope of the audits, the transactions and the documents on which he was questioned by reference to the steps undertaken during the audits and the opinions he had formed at the time the audits were undertaken on the basis of the material provided to PKF to undertake that task. The direction on expert witnesses given by the trial judge explained why an expert’s opinion was admitted into evidence. The summing up of the trial judge endorsed the admissibility of Mr Wessels’ evidence to the extent that he expressed opinions within his expertise that was left to the jury for their consideration. Even without Mr Wessels being named expressly by the trial judge in the course of the expert witness direction, it was apparent to the jury otherwise from the summing up that their task was to consider Mr Wessels’ opinions in the context of all the other evidence in the trial.
As the appellant’s trial counsel did not seek a redirection from the trial judge to apply the expert witness direction expressly to Mr Wessels’ evidence, the appellant must establish the failure to give that direction constituted a miscarriage of justice. In view of the manner in which the trial judge summarised Mr Wessels’ evidence in the summing up and the fact that Mr Wessels’ evidence to the extent that it dealt with the Orchard Group suffered from his acknowledgment that he did not have access to any records from the Orchard Group when undertaking the audits of the Corporate Group, the appellant cannot show that it was reasonably possible the trial judge’s failure to extend the expert witness direction to cover Mr Wessels may have affected the verdict on count 1. The appellant therefore does not succeed on this ground.
Ground 7: Failure to direct on discreditable conduct
The prosecution tendered a report by Deloitte in 2003, which contained a statement that the directors of Kleenmaid (as it then was) “run the risk of trading while insolvent”. It was said that such a risk depended upon an absence of “continued support of the Bank, its trade creditors and the ATO”. No opinion was expressed in the report that the company was then insolvent.
The prosecution relied upon that part of the report as being relevant to the “state of mind” of the appellant on all counts. At one point in his address to the jury, the prosecutor said:
“It doesn’t follow, of course, that every piece of evidence relating to events prior to November 2007, when the money – or the moneys were drawn down by EDIS and paid to Orchard – doesn’t mean that that evidence only relates to count 1. For example, there was evidence going back to 2003 in that Deloittes report …”
Later the prosecutor addressed the jury in these terms:
“And what that report did indicate: Kleenmaid was struggling to pay its debts, even back in 2003. And if Mr Young was aware of that report in 2003, at least the concept of insolvency or trading while insolvent wasn't completely alien to him several years later in July 2008 or October/July - October 2008, or 8th of the 8th 2009. That report even spoke of the possibility of Kleenmaid being or becoming insolvent. And there’s a reference on that at page 8. And as I've indicated, that reference might be relevant to Mr Young’s state of mind at the various times when counts 9 - counts 2 to 19 are alleged to have occurred.”
The appellant makes no complaint that the report was admitted into evidence. The appellant’s complaint is that the evidence may have been misused, because the prosecutor’s argument raised a prospect of unfair propensity reasoning. It is said that the prosecutor’s argument “left open the suggestion, and a path of reasoning, that the appellant had a preparedness to trade or manage a business while insolvent over a sustained period,” and that the argument raised the application of the test in Pfennig . It is said that the trial judge, by failing to direct the jury as to that test, and otherwise as to propensity reasoning, misdirected the jury, resulting in a miscarriage of justice.
The respondent submits that there was no evidence properly characterised as being discreditable conduct of the nature calling for such a direction, and nothing that was said by the prosecutor gave rise to a suggestion that propensity reasoning was available. The respondent points out that no direction of this kind was sought by defence counsel at the trial.
Those submissions for the respondent should be accepted. There was no argument by the prosecutor that the jury might consider that Kleenmaid was insolvent in 2003, and that the appellant had allowed it to trade as insolvent. The prosecutor’s reliance upon this evidence was that it was of some relevance to the appellant’s state of mind on each count because it tended to prove that the appellant was aware “at least [of] the concept of insolvency or trading whilst insolvent”. In our opinion, there was no real risk that the jury would use this evidence in a different way, and in particular, in the way which the appellant’s argument suggests. It is unsurprising that defence counsel sought no direction about propensity reasoning, because that may have prompted a line of reasoning which the jury, having regard to the limited relevance of this evidence and the prosecutor’s reliance upon it, would not have considered otherwise. There was no failure by the judge to direct the jury about this evidence and this ground of appeal fails.
Ground 8: Failure to direct on mistake of fact for count 1
At the trial, defence counsel specifically disavowed reliance on mistake of fact. Despite that, the appellant now submits that s 24 of the Code was raised on the evidence and the trial judge was obliged to direct the jury as to mistake of fact for count 1. On the basis of the appellant’s evidence, it is submitted there were two facts that were arguably the subject of an honest and reasonable, but mistaken belief on his part:
whether EDIS and the wider Corporate Group was arm’s length to Orchard KM and the wider Orchard Group; and
the debt position of the Orchard Group.
It is now argued on behalf of the appellant that the concession made by his trial counsel was wrong and was made for no forensic advantage to the appellant whatsoever, but the result of the concession is that a genuinely available exculpatory defence was not put to the jury for consideration.
It was understandable why the appellant’s counsel at trial did not seek to rely on mistake of fact, as the essence of the appellant’s defence to count 1 was that he was not dishonest. The factual matters the appellant now relies on to urge that he was operating under an honest and reasonable, but mistaken, belief were the same factual matters that were relied on for contending that at trial the prosecution could not prove the defendant acted dishonestly in connection with EDIS obtaining the facility of $13 million from Westpac. As the respondent submits, the jury must have rejected the appellant’s evidence as to his state of belief as to the companies being at arm’s length and/or the financial position of the company to bring in a guilty verdict for count 1. This ground fails.
Ground 9: Failure to direct on claim of right for count 1
Section 22(2) of the Code provides that a person is not criminally responsible for an offence relating to property, for an act or omission with respect to that property in the exercise of an honest claim of right and without an intention to defraud.
No direction was sought by defence counsel as to s 22. That is unsurprising, because such a direction could not have improved the appellant’s prospects of an acquittal on count 1.
There is an ambiguity in the appellant’s case that this was an offence “relating to property”. In the appellant’s original written submissions, it was apparently contended that the “property” was the financial information about Orchard KM which, according to the appellant, he was precluded from providing to Westpac by the direction of his brother Andrew. It was his brother’s “claim of right” (or that of the company controlled by his brother) to that information which was said to be relevant to that argument. However, on that understanding of the appellant’s argument, count 1 was not an offence “relating to property”. In Walden v Hensler , Brennan J held that s 22(2) “applies only to offences in which the causing of another to part with property or the infringing of another’s rights over or in respect of property is an element.” Further, if the property was constituted by the financial information of Orchard KM, the appellant could not be said to have been acting as a claimant of that right, or as the agent of the person having that right.
However in the appellant’s written submissions in reply, and at one point in the oral argument, it was submitted that the “property” was constituted by “money in the order of $13,000,000”. But upon that premise, it is obvious to say that there could have been no claim of right to that property (the Westpac facility or its proceeds) at any time which was relevant to count 1, namely when the appellant was endeavouring to procure that property.
There is a further difficulty for this ground. The prosecution had to prove, beyond reasonable doubt, that the appellant acted dishonestly. We have discussed the particulars of that case, which involved acts and omissions beyond the mere non-provision of financial information about Orchard KM or what became known as the Orchard Group. In each respect, the appellant’s alleged dishonesty amounted to a fraudulent misrepresentation of a relevant fact or circumstance. Consequently, if dishonesty was proved, there was no scope for the operation of s 22(2).
This ground fails.
The additional ground of appeal – count 1
Long after the hearing, and the delivery of extensive further written submissions, the appellant applied to present further submissions in support of a new ground of appeal, expressed as follows:
“As a result of fresh or new evidence a miscarriage of justice has occurred.”
The fresh evidence was said to be that set out in an affidavit of the appellant’s solicitor, which was filed with those submissions. The evidence came from the recent trial of these charges against the appellant’s brother, Andrew Young. For the most part, it consists of the evidence given in that trial by Mr Hughes. Curiously, it includes also the admissions of facts within that trial. This material, as exhibited to the solicitor’s affidavit, extends to more than 450 pages. Neither the proposed ground of appeal, nor the evidence of the solicitor, provides any indication of just what of this material constitutes this further and critical evidence, which would warrant these convictions being quashed. However, the effect of the further evidence, which is included within this material, is described in the further submissions.
This further ground of appeal is advanced in relation to each conviction. At this point, we will discuss only the case which is sought to be advanced in relation to count 1. It is convenient to discuss the submissions applying to other counts later in this judgment.
The part of the submissions which relates to count 1 appears to be what is submitted under the heading “Company Structure”. The evidence of Mr Hughes, and the prosecution case in reliance upon it, is said to have been significantly different in the trial of Andrew Young, from his evidence in the appellant’s trial. In the appellant’s trial, the prosecution led evidence, through Mr Hughes, that Orchard KM was “a parent company of the Orchard Group”. In the trial against Andrew Young, it is said that Mr Hughes accepted that this was not so, and that the prosecutor and counsel for Andrew Young agreed, by joint admissions read into the record, that the parent company for the Orchard Group was Kleenmaid Holdings.
As the appellant’s argument acknowledges, the prosecutor at the appellant’s trial, whilst saying that Orchard KM was the parent company, said that the point was immaterial. In his closing address at the appellant’s trial, the prosecutor said:
“[I]t doesn’t matter, because whichever one is at the top, you can see that all of the companies including the disputed Kleenmaid Retail, are subsidiaries of Kleenmaid Holdings …”
However, the appellant’s argument is that this did matter, because it was relevant to the prosecution case that the appellant acted dishonestly, in concealing the “serious debt position of the Orchard Group, in particular Orchard KM”.
The submission is developed in this way. There was evidence from Ms King, who was employed as an accountant for Kleenmaid Pty Ltd, to which we have referred earlier in discussing whether the jury’s verdict on count 1 was unreasonable. She also testified that she did not provide the appellant with financial accounts for Kleenmaid Holdings. The submission continues that, although there was evidence that the appellant had access to the balance sheet of Orchard KM, it is said that this did not reveal “a serious debt position”. Consequently, it is suggested, the appellant could not have known of any serious debt position of the Orchard Group, because if there was such a thing, it must have come from the financial position of the parent company. Because the parent company was Kleenmaid Holdings, the appellant could not have known of the serious debt position of the Orchard Group.
This argument is unpersuasive. The jury was not bound to accept the testimony of Ms King. Nor was it bound to accept the appellant’s testimony that the Orchard KM balance sheet did not reveal a serious debt position.
It was open to the jury to accept other evidence, which was that by December 2007, Orchard KM had a balance sheet deficit of $6.3 million, and that this was understated by $17.6 million. The appellant testified that he was the managing director of effectively the entire Kleenmaid Group from 2005. That evidence was inconsistent with the ASIC records tendered in the prosecution case, which stated, for example, that the appellant had not been a director of Orchard KM (formerly Kleenmaid Pty Ltd). But the ASIC records showed that he had been the company secretary from 25 May 1995.
Consequently, the jury was entitled to conclude that Orchard KM had a “serious debt position”, and that the appellant, with the involvement in its management of which he testified, knew it. Further, as we have discussed, it was not only this company which was in financial difficulty by the time of the transaction with Westpac in November 2007. The company which operated the retail stores (other than those operated by franchisees), Kleenmaid Retail Pty Ltd, had a balance sheet deficit of $24 million by the end of that year.
Therefore, the question of whether it was Kleenmaid Holdings, or Orchard KM, which was the parent company of the Orchard Group did not matter. It was open to the jury to accept the evidence that the Orchard Group did have the serious debt position which the prosecution alleged, regardless of which of these two companies was the parent of the group. This was a false issue, which is likely to explain why, although the issue was referred to in the appellant’s original argument in this Court, it was not the subject of a ground of appeal. Rather, it was raised as an example of what was said to be a lack of clarity in the presentation of the prosecution case, compounding the jury’s difficulties in understanding it.
For these reasons, it is immaterial that, if it be the case, Mr Hughes changed his evidence in the trial of the appellant’s brother, by accepting that the parent company was Kleenmaid Holdings. It could not be said (and we do not understand that it is said) that this change casts such a cloud over the credibility or reliability of Mr Hughes that there has been a miscarriage of justice by the jury in the appellant’s case acting upon his evidence about the things which did matter. The proposed new ground does not assist the appellant’s challenge to his conviction on count 1. As we have said, we will return to the proposed ground in relation to the other counts later in this judgment.
It follows that none of the grounds of appeal against the appellant’s conviction on count 1 succeeds.
The insolvent trading offences
As we have noted, counts 2 to 17 and 19 alleged offences against s 588G(3) of the Corporations Act. For counts 2 and 3, the offending was alleged to have occurred on or about 3 July 2008. For counts 4 to 15, it was alleged to have taken place on or about specific dates which ranged from 5 November 2008 to 8 April 2009. In the case of counts 16, 17 and 19, the specific dates fell within the period from 31 October 2008 to 31 January 2009.
These counts required proof to the requisite standard of the elements of the s 588G(3) offence. Significantly for present purposes, it required proof that EDIS was insolvent at 3 July 2008 and thereafter; that the appellant, as a director of EDIS, suspected that it was insolvent at 3 July 2008 and thereafter; that he failed to prevent EDIS from incurring the respective debts; and that his failure to do so was dishonest.
It was not disputed that EDIS incurred the debts the subject of the counts; that the appellant was a director of EDIS at the times when the respective debts were incurred; or that he had failed to prevent EDIS from incurring the debts.
Grounds 11 to 16 concern a range of topics: directions given relevant to the elements of insolvency and the basis of liability for two of the counts; an alleged failure to give a direction with respect to mistake of fact for all of these counts; and miscarriages of justice which are alleged to have arisen from the admission of expert evidence of one witness and the recalling of another witness. It is convenient to consider those grounds before turning to Ground 17 which contends that the verdicts on the insolvent trading counts are unreasonable and cannot be supported by the evidence.
Ground 11: Misdirection on s 588G(1)(c)
Section 588G of the Corporations Act concerns a director’s duty to prevent insolvent trading by a company. Sub-section (1) provides:
“(1) This section applies if:
a person is a director of a company at the time when the company incurs a debt; and
the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
that time is at or after the commencement of this Act.”
Sub-section (2) is a civil penalty provision. However, sub-section (3) is an offence provision. It states:
“(3) A person commits an offence if:
a company incurs a debt at a particular time; and
(aa) at that time, a person is a director of the company; and
the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and
the person's failure to prevent the company incurring the debt was dishonest.”
On the first day of the summing up, the learned trial judge directed the jury as follows:
“In so far as the element of suspicion on the part of the defendant is allegedly concerned, a suspicion that something exists is more than mere idol [sic] wondering whether it exists or not, it is a positive feeling of actual apprehension or mistrust, amounting to a slight opinion with or without sufficient evidence.
Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. It follows that there must be reasonable grounds known to the defendant for suspecting that the company is insolvent. A director fails to prevent a company from incurring a debt if the debt is incurred by a company at a time when there are reasonable grounds for suspecting that the company is insolvent.”
On the following day, his Honour gave the following further directions:
“The next element that I will refer to is are you satisfied beyond reasonable doubt that at the relevant [time] the defendant suspected that EDIS Service Logistics Proprietary Limited was insolvent or would become insolvent as a result of incurring the debt or other debts. Now, as I understand it, the prosecution rely on the same matters that I’ve referred to just a moment ago to prove this element, and so I won’t repeat them. I think the defendant also relies on the same arguments and submissions that I’ve just referred you to, and again I won’t repeat them for that reason.
But the defendant also relies on the following additional considerations as being relevant to your consideration and assessment. The first is that given the defendant’s degree and level of involvement in the financial side of EDIS’s functioning, there is insufficient evidence upon which you would be satisfied beyond reasonable doubt that he had formed the suspicion alleged. You must also bear in mind that it is the defendant’s alleged suspicion that is to be determined, not that of some imaginary reasonable person. His continuing efforts at finding areas to save costs or increase profits or obtain further finance or to invest his own money are indicative of a man who did not suspect that the company was insolvent or would become insolvent because of incurring the alleged debt or any other debt. In other words, why go to all this effort if he suspected that the company was insolvent. And the absence of evidence as to the defendant’s knowledge of the financial position, particularly – well, the financial position of Orchard KM Proprietary Limited.
So once again, if you have no reasonable doubt about this element, then you move on to consider the next. If you have a reasonable doubt, then you would acquit.”
This ground of appeal is that the learned trial judge erred in directing the jury as to the element in s 588G(1)(c). In written submissions, the appellant contended that the provision in s 588G(1)(c) is “an essential element” of the insolvent trading offences with which the appellant had been charged. In oral argument, senior counsel for the appellant limited the ground to that contention, adding that as a separate element of the offence, it required a separate direction.
The directions were deficient, it was argued, because that did not occur. The direction first given in speaking of “reasonable grounds known to the defendant” mixed the objectivity inherent in the expression “reasonable grounds for suspecting that the company is insolvent” in s 588G(1)(c) with the subjectivity inherent in the expression “the person suspected … that the company was insolvent” in s 588G(3)(c).
The argument continued that, on the other hand, the directions given on the second day were correct in that they contrasted alleged suspicion on the part of the defendant with that of “some imaginary reasonable person”.
The validity of this ground of appeal is dependent upon the soundness of the appellant’s proposition that the provision in s 588G(1)(c) is an element of the offence which s 588G(3) enacts. In our view, that proposition is an unsound one. As the respondent submitted, the elements of an offence for which the Corporations Act provides are determined by applying Chapter 2 of the Criminal Code (Cth) to the provision which enacts the offence. Section 3.2 thereof directs attention to the “law creating the offence”. Here, the relevant offence provision is s 588G(3). It is that provision which sets out all the elements of the offence which it enacts. The content of s 588G(1)(c) is not one of those elements. It follows that the learned trial judge was not required to direct the jury as if it was an element of the offence.
We note that in the first direction, his Honour spoke of a need for there to have been reasonable grounds known to the appellant for suspecting that the company was insolvent. We understand him to have used those words in further explanation of what is needed in order to ground a suspicion in contrast to what might give rise to an idle wondering or a mere speculation. Consistently with that understanding, we doubt that the reference to reasonable grounds for suspecting that the company was insolvent was intended as an instruction to the jury on the footing that the provision in s 588G(1)(c) is an element of the offences charged.
There was no admission by the appellant that he had held the requisite suspicion. The jury was asked to find that fact by an inference from established facts and circumstances. There was no real possibility that the jury could have been satisfied of the appellant’s actual suspicion in the absence of reasonable grounds for that suspicion.
In any event, no objection was taken to the directions. Nor was there a request for re-direction. In the absence of prejudice to the appellant, no resultant miscarriage of justice has been demonstrated.
For these reasons, this ground of appeal cannot succeed.
Ground 12: Inadequate directions on insolvency
In the Executive Summary to his Supplementary Report, Mr Hughes expressed the opinion that EDIS and other group companies had been insolvent since March 2008. Tables 9.1, 9.2 and 9.3 in his report set out respectively quarterly Profit and Loss Statements, Balance Sheets and summarised Balance Sheets for EDIS from September 2006 to April 2009. It was upon financial matter set out in those tables, and other facts set out in the tables and figurative depictions which followed them and in the Executive Summary itself, that his conclusion as to insolvency was based.
The components are, first, that Mr Hughes impermissibly gave expert evidence about the point in time when EDIS became insolvent; second, that the learned trial judge erred in his directions as to how the jury was to assess insolvency; and thirdly, that his Honour also erred in not making it clear in the directions that the jury were to focus upon the state of insolvency of EDIS as opposed to the state of solvency of the consolidated group. It is convenient to consider these components separately.
First component: In support of the inadmissibility contention, the appellant has cited the following passage from the judgment of Barwick CJ (with whom McTiernan and Windeyer JJ agreed) in Sandell v Porter:
“The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms, though no doubt experts may speak as to the likelihood of any of the debtor’s assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due.”
The respondent submitted that Mr Hughes’ evidence was admissible in its entirety. It was not evidence as to how the jury ought decide the ultimate issue for each of the insolvent trading counts. And, furthermore, in civil proceedings concerning insolvent trading, it is commonplace for expert evidence to be given about the date of a company’s insolvency.
The respondent noted that defence counsel had not objected to the evidence. Hence, there could not have been an error of law on the part of the learned trial judge concerning the admission of it. The respondent further submitted that even if the evidence was inadmissible, the appellant had not lost a real chance of acquittal by virtue of the admission of it. There was significant other evidence on which the jury could have formed the view that EDIS was insolvent at the time when the debts the subject of the insolvent trading counts were incurred.
We would accept for present purposes that, consistently with the observations of Barwick CJ in Sandell , the evidence given by Mr Hughes that EDIS was insolvent since March 2008 was inadmissible. Those observations would, however, confine the expert evidence that is inadmissible to evidence in terms that EDIS was insolvent from that time. They would leave admissible the evidence that Mr Hughes otherwise gave, including the evidence concerning the irrecoverability by EDIS of intercompany receivables owed to it by Orchard KM and Order House due to the insolvency of those companies and the impact that had in placing the value of its net assets in substantial deficit at 31 March 2008.
We would, however, also accept the respondent’s submission that if Mr Hughes’ conclusionary opinion evidence as to insolvency was inadmissible, the admission of it did not deprive the appellant of a real chance of acquittal. In addition to the other admissible evidence given by Mr Hughes, there was further significant evidence from which the jury could have concluded that EDIS was insolvent since March 2008. That evidence, which is elaborated in the consideration of Ground 17, included correspondence from creditors demanding repayments, the need for EDIS to obtain further finance from Westpac in July 2008 to finance its operations, internal communications between EDIS and Orchard Group employees about ongoing cash flow problems, as well as the fact that EDIS was ultimately placed in voluntary administration in April 2009.
There was therefore no miscarriage of justice arising from the admission of the identified inadmissible evidence.
Second component: The learned trial judge directed the jury that in relation to counts 2 to 19, “insolvent” has the meaning given to it by s 95A of the Corporations Act . His Honour continued:
(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable –
(2) A person who is not solvent is insolvent.
And EDIS Service Logistics Proprietary Limited is a person for these purposes.”
The same definition was repeated in written form for the jury.
A little later, his Honour told the jury:
“Now, on the issue of solvency or insolvency, can I say this, when considering the issue of insolvency, you would of course apply the test that is provided for by section 95A of the Corporations Act, which is repeated in that document. But when considering that issue, it is legitimate for you to take into account and assess matters of relevance or potential relevance.
Now, they might include, in the context of this trial, and you can write these things down if you so wish, and I’ll take it slowly for that reason, (1) continuing losses, (2) any indulgences extended to a company by its creditors as to trading terms such as extensions of trading terms and/or payment plans agreed upon, (3) liquidity ratios below one, (4) overdue taxes, (5) an inability to borrow further funds or access alternative finance or raise equity capital, (6) suppliers placing the company on cash on delivery, COD, or equivalent or otherwise demanding special payments before resuming supply, (7) creditors unpaid outside trading terms, (8) special arrangements with selected creditors, and (9) solicitor’s letters, summonses or statutory letters of demand regarding outstanding debts.
I’m not suggesting that all of these matters are of relevance in this case. I’m not suggesting that they’re not, but they are potentially matters of relevance that you may wish to take into account when applying the test of insolvency. They are potentially relevant considerations in the determination of the element of insolvency. They may also, to some degree, depending on the evidence, be of some relevance to the issue of the defendant’s suspicion as to insolvency, but that is a matter for yourselves.”
The appellant submitted that the directions were insufficient in that they did not provide guidance to the jury as to how s 95A applied to the facts of the case. In oral submissions, senior counsel for the appellant referred to the summary of principles compiled by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation  as illustrative of directions that should have been given.
The first of those principles is that whether or not a company is insolvent for the purposes of s 95A is a question of fact ascertained from the company’s financial position taken as a whole. The second is that in considering the company’s financial position as a whole, the Court must have regard to commercial realities. The principles that follow elaborate upon factors potentially relevant to commercial realities.
In our view, the directions that were given, although not expressed in the words used by Palmer J, convey the substance of them. The topics which the learned trial judge identified and invited the jury to write down reflect factors relevant to commercial realities. The propensity of trading creditors to grant indulgences and the availability of further funds for borrowing are examples.
Moreover, references to topics such as those ones did convey to the jury that for a person to be able to pay their debts in terms of s 95A(1), there is no requirement that the person have in their possession at all times sufficient cash resources to discharge their debts. In this way, the directions also informed the jury of the substance of the observations made by Barwick CJ in Sandell as to the nature of the inquiry to be made in order to draw a conclusion as to insolvency.
We therefore consider that the directions given sufficiently identified for the jury the applicable law and factors potentially relevant in its application. It is unsurprising that further directions were not sought by defence counsel.
Third component: The appellant does not suggest that the learned trial judge failed to clearly direct the jury that they must find EDIS to have been insolvent at the relevant times in order for them to find him guilty of the insolvent trading counts. In essence, his submission is that because Mr Hughes’ report was as to the solvency of the members of the Kleenmaid Group as a whole and necessarily referred to financial aspects of the group, there could be no confidence that the jury did not consider the solvency of “the group” in order to determine the question of insolvency of EDIS.
If this submission is meant to suggest that the jury may have substituted consideration of the solvency of the group for consideration of the insolvency of EDIS, then it is without foundation. The jury were directed, in clear terms, that it was the insolvency of EDIS that was the relevant issue for their determination.
But if the submission proposes that the solvency of other group members was irrelevant to the solvency of EDIS, then it is plainly incorrect. For example, it is indisputable that the recoverability of EDIS’ high-level intercompany receivables was relevant to its solvency. If, as the evidence indicated, the receivables were to a substantial extent irrecoverable because of the insolvency of group members by whom they were to be paid, then plainly it was relevant to consider the insolvency of those members in order to reach a conclusion as to the insolvency of EDIS. This submission must be rejected.
Ground 13: erroneous direction in respect of counts 2 and 3
This ground of appeal is that the learned trial judge erred in directing the jury as to the basis of liability for counts 2 and 3. Those counts alleged insolvent trading offences committed by the appellant on or about 3 July 2008 in respect of the incurrence by EDIS of debts to Westpac in amounts of $1.5 million and $2 million respectively. Both counts alleged dishonesty in the appellant’s failure to prevent EDIS from incurring the debts.
In directing the jury, the learned trial judge told them that while the Crown relied on the appellant’s awareness that the debts the subject of all of the insolvent trading counts were unlikely to be repaid at the times they were respectively incurred as evidencing dishonesty, two additional factors were relied on in respect of counts 2 and 3 for that purpose. One of those factors arose from a letter signed by Mr Armstrong which EDIS sent to Westpac on 28 May 2008 and in which it sought further funding of $4 million to refurbish stores, to adjust to new supplier terms and to address an inventory imbalance.
On the Crown case, the letter was written in circumstances where EDIS was sustaining chronic and endemic cash flow problems which, of course, were not disclosed in it. Mr Armstrong gave evidence that the appellant was involved in the drafting of the letter. The appellant himself confirmed that he was aware of its contents and that it was being sent to Westpac.
The error alleged here is based upon the premise that the fact that Mr Armstrong was the author of the letter raised for consideration whether the offending on the appellant’s part was meant to be proved by engagement of the provisions in Part 2.4 of the Criminal Code (Cth) relating to the extension of criminal responsibility. Reference was made in particular to s 11.2 thereof and to the consideration of that provision by this Court in R v Handlen .
The appellant’s premise is, in our view, incorrect. Counts 2 and 3 were not counts in which the Crown was required to establish that dishonest representations were made by the appellant to Westpac and that it was therefore necessary to attribute criminal responsibility to him for the sending of the letter by Mr Armstrong to Westpac. By contrast, what the counts required the Crown to prove included that at the time of the incurrence of the debts, EDIS was insolvent; that the appellant knew that; and that he acted dishonestly in failing to prevent EDIS from incurring the debts.
Thus, the evidential value of the letter was as circumstantial evidence relevant to the appellant’s state of mind. If the jury considered that the letter was misleading as to the purpose for which the loan was actually sought, then in circumstances where it had been written and sent with the appellant’s knowledge, it was evidence relevant to the drawing of an inference of dishonesty on the appellant’s part in failing to prevent the incurrence by EDIS of the two debts to Westpac.
It was therefore unnecessary for his Honour to have addressed the jury as if reliance was placed by the Crown on the extension of criminal responsibility provisions in s 11.2 or otherwise. Accordingly, this ground of appeal cannot succeed.
Ground 14: Failure to direct on mistake of fact for counts 2 to 17 and 19
This ground relies on the defence of mistake of fact provided for in s 9.1 of the Code (Cth). Section 9.1 provides:
“(1) A person is not criminally responsible for an offence that has a physical element for which there is a fault element other than negligence if:
at the time of the conduct constituting the physical element, the person is under a mistaken belief about, or is ignorant of, facts; and
the existence of that mistaken belief or ignorance negates any fault element applying to that physical element.
In determining whether a person was under a mistaken belief about, or was ignorant of, facts, the tribunal of fact may consider whether the mistaken belief or ignorance was reasonable in the circumstances.”
The appellant gave evidence of his belief in the solvency of EDIS on the basis that it would continue to have access to finance. The appellant submits that in seeking further finance from Westpac for a specified amount, the appellant demonstrated:
a belief that the financing sought from Westpac in February 2009 was sufficient to meet the funding requirements of EDIS; and
a belief that EDIS would have the support of Westpac.
The appellant therefore submits that a belief in those matters was capable of being assessed by a jury as a belief in the solvency of EDIS Services Logistics Pty Ltd.
The respondent relies on the fact that the appellant’s counsel at trial did not seek a direction pursuant to s 9.1 of the Code (Cth) for counts 2 to 19. The respondent submits that, in any event, such a direction was not necessary. This is on the basis that, in practice, s 9.1 of the Code (Cth) has no work to do, as explained in R v Donaldson and Poumako,  as even if that provision did not exist, the outcome would be the same. The effect of the provision is to negate the fault element, but if the fault element cannot be proved by the prosecution, because an accused had a particular mistaken belief about a fact, or was ignorant of a fact, the offence cannot be proved beyond reasonable doubt by the prosecution.
For each of counts 2 to 19, the prosecution had to prove beyond reasonable doubt that the appellant’s failure to prevent EDIS Services Logistics Pty Ltd from incurring the relevant debt was dishonest. Proof of dishonesty must negative any possibility of the defence under s 9.1 of the Code (Cth). A direction pursuant to s 9.1 of the Code (Cth) for counts 2 to 19 was therefore not required in the circumstances.
Ground 15: Expert evidence from Tiernan White
This ground of appeal concerns evidence adduced in the Crown case from Mr TM White. From 2001 to 2009, Mr White, a chartered accountant, was employed by Westpac. In 2009, he was in its asset restructuring division. He had conversations with the appellant and Mr Armstrong in January and February 2009 about matters including EDIS’ financial position, its indebtedness to the Orchard Group and the possibility of EDIS obtaining further finance from Westpac. The evidence that Mr White would give was not summarised in a document which was given to defence counsel in advance.
As formulated in written submissions, the basis for this ground of appeal is that Mr White gave opinion evidence with respect to the contents of a document titled “Go Forward Discussion Paper” which had been prepared by Mr Harris of McGrathNicol and supplied to Westpac. The learned trial judge told the jury that Mr White’s evidence was potentially important because it touched upon the thrust of a Defence challenge to Mr Hughes’ opinions, namely that EDIS was about to benefit from a number of cash-making initiatives.
The appellant contended that defence counsel’s objection to the reception of this evidence was overruled and that his request for a delay to the cross examination was refused. Further, it was suggested that Mr White’s evidence was clouded by uncertainty on his part as to whether he had been given the discussion paper before or after a meeting he attended with Kleenmaid group personnel including the appellant on 24 February 2009.
This ground of appeal is that “a miscarriage of justice occurred due to the prosecutor leading, without notice, expert evidence” from Mr White. It was not addressed by counsel for the appellant in oral submissions. We have concluded that no miscarriage of justice has been established in the written submissions in support of it, for the following reasons.
In his evidence in chief, Mr White stated that on 22 March 2009, Mr Armstrong emailed him projections for the following business units: EDIS Appliance Division, EDIS Spare Parts and Kleenmaid Customer Solutions, and also notes concerning the material assumptions for the first of those projections. As Mr White was giving evidence in chief of his opinions with respect to various aspects of the material assumptions, defence counsel objected. Relevantly, the objection was to “limitations on this witness’s expertise” to give expert evidence on various aspects of the material assumptions.
Crown counsel then adduced further evidence from Mr White about his qualifications in accounting, insolvency administration and banking in order to prove his status to give the opinions as an expert. His expertise was not thereafter challenged and he continued to give evidence concerning the material assumptions in the notes and then evidence concerning the projections for the EDIS Appliance Division.
Mr White was next questioned in relation to the Go Forward Discussion Paper. He said that “certainly it was provided before the meeting” on 24 February 2009. In the course of questioning, Mr White expressed various opinions on the contents of the discussion paper. No objection was taken to that evidence.
At the conclusion of Mr White’s evidence in chief, defence counsel requested that cross examination be delayed until the following day. He asked that the court adjourn 14 minutes early so that he might have an opportunity to take instructions. The request was refused, defence counsel having conceded that there were other matters on which he could cross examine without the need for further instructions. The cross examination continued on that basis. During it, Mr White accepted that it was possible that the discussion paper had not been emailed to him prior to the meeting. It was suggested to him that Mr Harris had given him that document after 24 February 2009. He said that he had no recollection of that.
On the following day, defence counsel returned to the topic and Mr White volunteered that he had checked his records overnight and clarified that he had not received the discussion paper before the meeting. He said, however, that he had a recollection of having had a version of it on the day of the meeting.
It follows from this chronology, that it is incorrect for the appellant to contend that he objected to the receipt of opinion evidence by Mr White with respect to the content of the discussion paper. To the extent that there was objection, it was to Mr White’s qualifications and it was not pursued. It is also incorrect to imply that by the refusal of an adjournment, defence counsel was deprived of the opportunity to take instructions for cross examination of Mr White on his opinions.
The lack of clarity in Mr White’s evidence as to when the discussion paper was provided to him is not shown by the appellant to have materially affected the integrity of the opinions Mr White gave concerning its contents. Lastly, and significantly, the appellant has not demonstrated that the receipt of Mr White’s opinion evidence prejudiced in any way the conduct of his defence.
Ground 16: recall of Stuart McIntyre
This ground of appeal is that the appellant was denied a fair trial as a result of the prosecutor being permitted to recall a witness, Stuart McIntyre. Mr McIntyre was an employee of Westpac. He was a credit manager at Parramatta at the time when he had an involvement with EDIS.
Mr McIntyre was called to give evidence that was relevant to count 2. In his evidence in chief, he was asked about his involvement in July 2008 with the EDIS facilities. Speaking of an increase of $1.5 million in the Flexible Options Facility in early July 2008, Mr McIntyre said that it effectively replaced an existing temporary overdraft and did not amount to the provision of additional funds. That evidence was harmful to the Crown case on count 2 which, of course, was posited on the footing that the amount of $1.5 million was a debt incurred by EDIS to Westpac in July 2008.
In cross examination, Mr McIntyre confirmed his evidence in chief on this point. He agreed that there had been an administrative change but that there was “absolutely no change in the debt position”. He accepted propositions put to him that the $1.5 million increase to the facility made no change to EDIS’ debt position because that amount had already flowed to EDIS in November 2007 upon approval by another Westpac officer.
Mr McIntyre maintained the confirmation of this evidence during re-examination. He was then excused from further attendance.
This evidence conflicted with other evidence that had been adduced in the Crown case, including a document that Mr McIntyre himself had signed on 4 July 2008 in relation to the facility. After he had been excused, Mr McIntyre was shown documents relevant to the issue. He then provided an Addendum Statement in which he agreed that his evidence in this respect was incorrect.
Leave was sought to recall Mr McIntyre to give further evidence. It was granted over opposition by defence counsel.
When he was recalled, Mr McIntyre gave evidence that having reviewed a number of additional documents, he was able to say that the exposure of Westpac to EDIS did include an increase of $1.5 million in the Flexible Options Facility which was approved in July 2008. He was then taken through various Westpac documents that supported the correction to his evidence.
During cross examination which followed, defence counsel read passages of Mr McIntyre’s earlier cross examination on the topic and obtained confirmation from him that he had given prior evidence that the $1.5 million was an administrative change that did not amount to an increase in the debt position of EDIS. He also obtained a concession from Mr McIntyre that the latter held the same erroneous understanding in July 2008 when he made his recommendations in respect of changes to the facility.
At the hearing of the appeal, senior counsel for the appellant advised the Court that his client was content to put to one side any argument that the grant of leave to recall Mr McIntyre, to correct his evidence of itself, denied him a fair trial. Counsel explained that the gravamen of the complaint was that “the leading Crown prosecutor … was able to use this as a sword against” the appellant.
To illustrate that, reference was made to the cross examination of the appellant in which it was put to him that any suggestion made by his counsel on “his behalf” that there had been merely a turning of a temporary overdraft into a permanent overdraft with no increase in the debt limit, would have been “completely wrong” and also to a statement by the prosecutor in his closing address that “it’s now not disputed that in the subsequent July (the loan) went from $4.5 million to $6 million.”
Counsel submitted that it was improper to use the fact that Mr McIntyre had corrected his evidence to affirm that the loan had increased by $1.5 million as exposing cross examination by defence counsel to the contrary as being an attempt to create a baseless controversy and then to imply that that had been done on the appellant’s instructions. It was submitted that the implication discredited the appellant whose honesty was in issue. It did so unfairly. On Mr McIntyre’s evidence in chief, cross examination and re-examination before he was recalled, there was a sound forensic basis for the cross examination. Further, there was no evidence that the cross examination was done on the appellant’s instructions.
In our view, the complaint of unfairness misstates the effect of the question in cross examination of the appellant and what was said in the closing address. The question put described the suggestion as one made on the appellant’s behalf. It did not describe it as made on the appellant’s instructions. Nor did it yield a concession from the appellant that such a suggestion would have been baseless. His answer to it was: “Not necessarily”.
As to the statement made in the closing address, it was limited to the position once the evidence had closed. It did not reflect upon the conduct of the defence. Specifically, it did not impute to defence counsel or the appellant a contrived and persistent disputation of an increase in the indebtedness of $1.5 million.
Significantly, no objection was made by defence counsel either to the question or to the statement in the closing address. There would, in our view, have been no substantial basis for either.
For these reasons, we consider that this ground of appeal has not been established.
Ground 17: Unreasonable verdicts on insolvent trading counts
Discussion of this topic is best undertaken by considering separately the evidence relied on by the Crown as to insolvency of EDIS, the appellant’s suspicion of it, and dishonesty on his part in incurring the debts.
Insolvency of EDIS
Mr Hughes gave evidence that:
As at March 2008, the deficit of the Corporate and Orchard Groups, which he referred to collectively as the Kleenmaid Group, on a consolidated basis was approximately $40 million.
The only external income earned by the companies within the Corporate Group was from the sale of goods (by EDIS, representing the core group business), warranty repairs (by EDIS) and the sale of extended warranties (by Bizco).
As his firm’s report to ASIC showed, as at 31 March 2008 the balance sheet for EDIS disclosed net assets of $10.225 million, but those assets included intercompany receivables, one of which was a loan of the order $16 million. If that loan was unpayable, the net asset position of EDIS would change.
the impact of the insolvency of those two companies was that the receivables they owed to EDIS would not be paid and it was appropriate to remove them as assets of EDIS in order to assess its solvency.
when that adjustment was made, EDIS had a net asset deficit of approximately $15 million.
EDIS had no cash assets and trade payables of almost $8 million.
After March 2008, the financial position of EDIS worsened rapidly. Its adjusted net assets deficit at 30 June 2008 was in excess of $29 million. At 30 September 2008, it was in excess of $37 million; at 31 December 2008, in excess of $46 million; at 31 March 2009, in excess of $54 million.; and in excess of $56 million at 30 June 2009.
In the Supplementary Report to ASIC, Mr Hughes’ firm summarised why it was that Orchard KM was insolvent by March 2008 with the consequence that it could not repay loans it owed to other group companies. In doing so, they said:
“Due to Orchard KM’s high cash needs, cash raised by other companies in the Group was also loaned to Orchard KM. The main cash raising entities were EDIS (via spare parts) and Kleenmaid Pty Limited (i.e. Order House), which took customer deposits after the restructure. When Orchard KM became insolvent, the loans to it became unrecoverable (and they were significant assets of the other entities). This is the reason, in our opinion, that these companies that loaned these funds to Orchard KM became insolvent at the same time as Orchard KM became insolvent, that is, March 2008. The other entities in the Group were reliant on the cash producing entities for support also (most did not have an external source of income), and became insolvent at the same time.
The factors we considered when looking at Orchard KM and consequently the Group insolvency were:
- On a cash flow test, the Group had exhausted all its facilities available, had no available overdraft and was unable to raise any further significant finance after March 2008. It continued to use cash (from customer deposits) at a rapid rate both before and after external sources of finance were exhausted and right up until we were appointed;
- On a balance sheet test, Orchard KM and the Group had a large deficit; that is, liabilities far outweighed available assets. When looking at amounts due and payable in the short term, current liabilities also far outweighed current assets on both a Group and Orchard KM level. At no time since July 2006 did current assets exceed current liabilities;
- Other factors that indicated insolvency in March 2008 were:
a. Ongoing, accelerating and numerous demands for repayment, both formal and informal - for example, there were 23 demands made in the quarter ended 30 June 2008
b. As a result, the Group agreed to numerous repayment plans - for example, there were 33 planned payments in the quarter ended 30 June 2008
c. Whilst repayment plans were agreed, a consistent pattern of not meeting revised commitments
d. An inability of suppliers to obtain credit insurance for their credit risk of dealing with the Kleenmaid Group
e. Significant general correspondence (including email traffic) indicating cash flow, credit, supply and funding difficulties consistently from March 2008 onwards.”
There was, therefore, evidence before the jury that by 31 March 2008, EDIS had no cash assets; that it had no prospect of legitimately raising funds externally; that its intercompany receivables were irrecoverable; and that it had substantial trade payables. The evidence also established that the financial position of EDIS did not improve thereafter; indeed, it worsened. From that evidence, the jury could have been satisfied beyond reasonable doubt that by 31 March 2008, EDIS was insolvent and that it continued to be so thereafter.
Some months after the hearing of the appeal had concluded, the appellant, on 12 February 2019, filed an application for leave to make further written submissions in support of which he maintained that it was in the course of oral argument of the appeal that it became clear that the collectability of “the debt owed by Orchard KM to EDIS” (an apparent reference to the sequential indebtedness of Orchard KM to Order House and of Order House to EDIS) was central to the prosecution case. Resolution of that issue, it was submitted, “is central to the unreasonable verdict grounds” on the insolvent trading counts.
Leave to make such submissions is opposed. Both sides have made written submissions on leave and the topic that the submissions seek to address.
We cannot accept that it was not until the hearing of the appeal that the circumstance that debts owed by Orchard KM to Order House and Order House to EDIS were uncollectable played a significant role in the Crown case for reasoning towards a conclusion of insolvency. That was evident from the Supplementary Report to ASIC which was available to the defence before the trial, from the Crown Prosecutor’s opening address and the respondent’s written submissions on appeal.
We would accept the appellant’s proposition that if those debts were not uncollectable, then that would undermine a significant circumstance in the prosecution case that EDIS were insolvent by the end of March 2008 and remained so thereafter. However, that is a proposition that can avail the appellant only if the evidence at trial was such that the jury ought to have entertained a reasonable doubt that they were uncollectable.
Since written submissions have been exchanged on this topic, we propose to receive and consider them. However, for the reasons which follow, we conclude that the appellant’s submissions are unavailing for him. It need be borne in mind that the uncollectability of the debts was not the only circumstance on which the Crown case relied. There were also EDIS’s lack of cash assets and of capacity to legitimately raise funds, as well as its continuing to incur trading debts on its own behalf notwithstanding.
In summary, the appellant’s submission is that in March 2008, Orchard KM was paying creditors of EDIS directly on behalf of it and that that practice continued until March 2009. By this method, the indebtedness of Orchard KM to EDIS, via Order House, was being repaid, thus proving that the receivable was collectable.
We note at this point that the appellant could not realistically have submitted that the loan was being repaid by payments made by Orchard KM to EDIS. The effect of Mr Hughes’ evidence in answer to a suggestion in cross examination that the Orchard Group was paying EDIS for goods “on a fairly continual basis” was that although there were intercompany journal entries suggestive of that, they were not reflective of any significant cash payments actually made by any member of the Orchard Group to EDIS. Mr Hughes said:
“What I can tell you is that from the restructure onwards, Kleenmaid Proprietary Limited was collecting the cash for sales, and that was being forwarded to Orchard KM and paying those, and that was paying the creditors that were in existence pre-restructure”.
To return to the appellant’s submissions, it was not put to Mr Hughes that Orchard KM was making significant payments to suppliers on behalf of EDIS that were not accounted for in his analysis. In any event, the proposition that it was making such payments in reduction of its indebtedness, through Order House, to EDIS is unsupported by any documentary evidence of an anterior agreement having been made between them to that effect and is inconsistent with other evidence adduced at the trial which contradicted an ability on the part of Orchard KM to pay all debts incurred by EDIS from March 2008 onwards. The inability of the Kleenmaid Group as a whole, the Orchard Group and EDIS itself to pay trade payables from available cash during that period was graphically illustrated in the evidence.
The appellant also submits that an internally-produced balance sheet for EDIS (Appliance Division) which was in evidence, showed not only an increasing indebtedness of Order House to EDIS, but also an increasing indebtedness of EDIS to Orchard KM on account of payments made by the latter for the former’s benefit, with the result that by March 2009, Order House owed EDIS $66.371 million and EDIS owed Orchard KM $63.532 million. The assertion made is that “payments made by Orchard KM on behalf of EDIS were partly in fulfilment of the receivable owed by Order House to EDIS”. That, the appellant submits, “plainly shows” that the loan by EDIS to Order House “was collectable and was being collected”.
We cannot accept that submission. It is not apparent on the face of the exhibit that any payment was made by Orchard KM in reduction of the Order House indebtedness to EDIS at 31 March 2008 of almost $16 million. Nor was there any oral or other evidence to that effect. Mr Hughes’ evidence contradicted, rather than supported, that having occurred.
Moreover, the notion that Orchard KM would have been making substantial payments to pay all current trade creditors of another Kleenmaid Group member when it had insufficient funds to pay its own pre-restructure creditors strains credulity. Given that and the non-payment of the trade debts the subject of the counts, it is in all likelihood one that the jury would have rejected as unreasonable.
Suspicion of its insolvency
In the discussion of Ground 10, we have detailed the evidence of the appellant’s knowledge of the Order House arrangement and the dependence of EDIS on the Orchard Group for repayment of the latter’s indebtedness to EDIS.
In addition, the appellant was the recipient of numerous emails and other documents up to and after the restructure, alerting him to the demands of creditors and to the precarious financial position of companies within the Orchard Group, and of EDIS itself. Instances of them in the period up to June 2008 include:
On 5 September 2007, Mr Baker emailed Andrew Young (copy to the appellant) a summary of the cash flow position for Kleenmaid’s operations and accompanying spreadsheet setting out their financial position. Mr Baker noted:
“We have some big ticket items to pay … [a] total around 1.5m before we start paying anyone else. We have made a few promises to suppliers. We are going to need 2m plus next week”.
The managing director of CEO Global Logistics Pty Ltd emailed Andrew Young (copy to the appellant) on 19 September 2007 to advise that his company was unable to continue to trade with Kleenmaid Pty Ltd unless the amount it owed to his company was “brought back within agreed trading terms”. The appellant responded as “Managing Director, Kleenmaid Pty Ltd” outlining a proposal for paying the amount owed by instalments.
On 26 September 2007, Mr Proos emailed to Andrew Young (copy to the appellant) an updated cash flow spreadsheet stating:
“This week things are looking pretty grim too. It looks like by next week we will have overdue creditors in excess of $800,000 … It’s pretty hard to keep things going under the current circumstances; is there light at the end of the tunnel?”
To this, Andrew Young replied (copy to the appellant):
“We are well overdue in getting the proceeds of several initiatives that are currently in play. When these transpire, then you’ll get relief. BRAD Can you have a conversation with (Mr Proos) …”
In late September 2007, there were a number of other emails from Andrew Young to trade creditors (copies to the appellant) in which he sought to make arrangements for paying overdue accounts.
Mr Proos emailed Andrew Young (copy to the appellant) on 5 December 2017, a cash flow forecast which projected a negative cash flow for the nine weeks from 3 December 2007 to 28 January 2008. In it, Mr Proos noted that he had added in a monthly transfer of $140,000 that EDIS would need “from Kleenmaid”.
On 7 December 2007, Mr Proos wrote to Mr Baker (copy to the appellant and Andrew Young), drawing their attention to the fact that EDIS was then “on hold with GE” because of an overdue debit balance. He made the following request:
“Moving forward can you please plan for a monthly transfer to EDIS to support my cash flow shortfall in the first week of each month. An earlier analysis estimated this at $140,000K (sic) per month”.
Another email from Mr Proos in January 2008 identified that “we are now on credit hold with GE, Woodlands and Hillmark. Wages have been paid but now little available to pay suppliers. Note that we are now running $180K behind in terms of cash flow support.”
The appellant wrote to Mr Armstrong and Andrew Young on 28 February 2008 about managing cash flow and the information that was urgently required “from finance” to manage and review cash flow. On the following day, he forwarded to Andrew Young an email from the supplier, Brandt Asia, advising of a hold on shipments until payment was received of an outstanding amount of €220,000 and described it as “not a good outcome”.
Mr Armstrong sent an email to the appellant on 10 May 2008, the subject of it being “EDIS Appliances-Results for March Qtr”. In it he stated:
“I am sure that we all expected these results to be poor, prior to the recent changes. First drafts suggest a very poor result, due to a number of factors …We’ll need to prepare an explanation for Alan”.
As well, in the period leading up to 3 July 2008, the finance division continued to produce financial reporting documents which emphasised Kleenmaid’s very poor financial position. On the evidence, folders containing copies of those documents were left with the appellant’s personal assistant.
The financial position of EDIS and the Orchard Group did not improve after the receipt of further funding from Westpac. The new credit limit from Westpac of $6 million was almost fully exhausted by 9 July 2008, six days after its approval. Financial statements in evidence showed continuing losses following the funding from Westpac. Further email correspondence from Mr Pearce to Andrew Young (copy to the appellant) contained cash flow updates that showed significant shortfalls. On 9 July 2008, an email from Mr Pearce stated “We currently have a shortfall of $5.783M by Tuesday 15/7”.
On or about 7 October 2008, the appellant and Mr Armstrong informed Mr Dickson that Bizco would be defaulting on its obligations to Westpac. This was despite the fact that $1 million of the $3.5 million in funding from Westpac from July 2008 was approved directly for the purpose of assisting in making these payments. On 14 October 2008, the appellant proposed a payment plan to the Australian Taxation Office to repay approximately $600,000 in unpaid tax and interest.
In summary, there was, in our view, sufficient evidence before the jury for it to have been satisfied beyond reasonable doubt that the appellant suspected that EDIS was insolvent from March 2008. Satisfaction to that degree was by inference that arose compellingly from the evidence that the appellant knew of the Order House arrangement with EDIS and of that company’s dependence on the Orchard Group (notably Order House and Orchard KM) to repay indebtedness to EDIS; the numerous emails which he had received alerting him to demands of creditors and to the precarious position of companies within the Orchard Group; and the provision to him of the accounts of the Kleenmaid Group of companies on a regular basis.
This was a case in which it was open to the jury to have been satisfied beyond reasonable doubt that the appellant’s failure to prevent EDIS from incurring the debts the subject of the several insolvent trading counts was dishonest. There was, as the respondent submits, an inherent dishonesty on the appellant’s part in permitting the company to continue to incur increased indebtedness to Westpac and then further trading debts once he suspected that EDIS was insolvent. The dishonesty inhered not only in the appellant’s evident suspicion that EDIS was insolvent during the relevant period, but also in his knowledge of the scale of the company’s aggregating indebtedness and its chronic incapacity to repay the debts from its available resources.
For these reasons, we consider that this ground of appeal has not been established.
The additional ground of appeal – counts 2-17 and 19
The appellant’s further submissions as they relate to counts 2 to 17 and 19 contend that there is fresh evidence which goes to the element of dishonesty in respect of each count. It is submitted that evidence given recently by Mr Hughes during the trial of the appellant’s brother cannot support a conclusion that the appellant could not possibly have had any realistic expectation that further debts incurred by EDIS could not be paid.
The basis of this submission is a contention that Mr Hughes’ evidence changed fundamentally from the appellant’s trial to his brother’s later trial. The appellant has summarised the effect of the evidence given by Mr Hughes at his trial as being that EDIS was cash-starved following the restructure because deposits paid by consumers were channelled through Order House and on-lent to Orchard KM which, in essence, used it to pay its pre-restructure creditors. The appellant submits that, by contrast, the evidence Mr Hughes gave at his brother’s trial gives rise to an implication that at all times between July 2008 and April 2009, EDIS had a cash flow that allowed it to make regular and consistent payments to creditors of an estimated value of $43.965 million.
The respondent challenges the appellant’s contention at a number of levels. Underlying the challenge is the proposition that Mr Hughes did not depart from his evidence as to the lack of cash resources on the part of EDIS. In particular, his evidence at the brother’s trial neither stated nor implied that EDIS was itself paying its creditors regularly and consistently.
Before considering whether Mr Hughes did change his evidence in a manner that has consequences for present purposes, we note that the appellant has suggested in submissions that, viewed on a two-group basis in which inter-group indebtedness was assigned to the corporate entity heading each group, the $5 million owed by Kleenmaid Holdings to Kleenmaid Corporate at March 2008 “was paid at least four times over by 30 June 2008” taking into account payments by respective group members.
In our view, the appellant’s suggestion has no relevance for present purposes. Here, the focus of attention is on the financial position of EDIS. Its solvency depended upon the recoverability of debts owed to it by associated companies, notably Order House and indirectly by Orchard KM. It is erroneous in our view to aggregate, as the appellant’s submission does, the financial position of EDIS with that of other companies within the Corporate Group in order to assess the recoverability of debts owed to it.
As to the appellant’s contention of a fundamental change of evidence on Mr Hughes’ part, we do not accept that at Andrew Young’s trial, Mr Hughes departed from his evidence that at all times material to these counts, EDIS was cash-starved because of a channelling of customer deposits away from it under the restructure. The submission that the evidence given by Mr Hughes at that trial implied that EDIS was making regular and consistent payments to its creditors is unsustainable. That Orchard KM may have been making payments to trade creditors of EDIS, as Mr Hughes accepted was the case, did not imply that they were payments made by EDIS or that that company was sufficiently cash-funded to pay its creditors from its own funds. Nor, as we have pointed out, did it imply that such payments were by way of repayment to EDIS of indebtedness of Orchard KM to EDIS via Order House. In any event, EDIS was evidently insufficiently funded to pay the debts the subject of the counts as they were incurred.
For these reasons, we are unpersuaded that evidence given by Mr Hughes at the appellant’s brother’s trial has revealed a miscarriage of justice in his own trial. It has not been shown that that evidence has materially impugned the credibility or reliability of evidence given by Mr Hughes at the appellant’s trial as it had relevance to dishonesty on the appellant’s part.
In view of this and of the conclusion we have reached in respect of the proposed additional ground as it concerns count 1, we are minded to refuse the application to add a new ground of appeal.
Disposition of appeal against conviction
None of the grounds of appeal has succeeded. It will be ordered that the application to add an additional ground of appeal, as ground 20, be refused and on each count, the appeal against conviction be dismissed.
The appeal against sentence
The appellant applies for leave to appeal against a sentence of nine years’ imprisonment for the offence charged by count 1. It is contended that this term, and the total non-parole period which resulted from this term and the cumulative sentences for the other offences, resulted in an overall sentence which was manifestly excessive (ground 18). Further, it is argued that the trial judge erred in certain respects concerning the facts of the appellant’s offending, by which he was mistaken in his assessment of the appellant’s criminality on count 1 (ground 19).
The judge fixed a parole eligibility date, for the sentence on count 1, at four and a half years. Seven days of pre-sentence custody were declared as time served, with the consequence that he began to serve the nine year term on 5 August 2016, for which the half way point was 5 February 2021. On two of the insolvent trading counts, the appellant was ordered to serve terms of two and half years, to be served concurrently with each other but to commence on 5 February 2021. On the other counts, he was sentenced to various terms, the longest being 12 months’ imprisonment, to be served concurrently with each other but cumulatively upon the other counts. Consequently, the total period of imprisonment for the Commonwealth offences was three and half years, with a non-parole period of 21 months which would finish on 5 November 2022.
The total period of imprisonment imposed by these orders was therefore one of nine years, to expire on 5 August 2025. The terms for the Commonwealth offences would be served wholly within the term of nine years for count 1. In that way, the Commonwealth offences were concurrent with that for count 1. But the appellant was not to be released on parole until 5 November 2022, meaning that he would have to serve in custody at least six years three months of that period of nine years. For the appellant, it is argued that this non-parole period, effectively amounting to nearly 70 per cent of the period of imprisonment, is excessive.
By ground 19, it is contended that the trial judge erred in sentencing the appellant upon the basis of incorrect facts. The first error in this respect is said to be in his Honour’s observation that:
“Gary Armstrong told you in June of 2007 of Mr Drake’s forecast that at that time goodwill would need to exceed $68 million to offset the liabilities …”.
On 9 June 2007, Mr Drake emailed Mr Armstrong in respect of a proposed IPO for what was then the Kleenmaid Group. And Mr Drake’s analysis was a projection, rather than a statement of the group’s then financial position. This is why the sentencing judge, correctly, referred to Mr Drake’s figures as a “forecast”. Nevertheless, it presented a very bleak picture. Mr Armstrong testified that he conveyed these figures to the appellant at a meeting.
The present submission refers to something said by the prosecutor, in opening the case, about this evidence, which was that the business of Kleenmaid “as a whole was $68 million in debt.” That was not correct, because Mr Drake’s figure was a prediction. But the submission seeks to attribute that statement to the sentencing judge. In our view, there was no misstatement by the judge as to the evidence, and it was clearly a finding which was relevant. Further, having regard to what we have said about the other evidence which supported the verdict on count 1, it cannot be said that the judge overstated the appellant’s criminality by this factual reference.
The second suggested error is in the judge’s statement as follows:
“You viewed [the September letter] in advance, or its equivalent. You approved its contents for submission to the bank, being aware of the false picture it presented.”
It is submitted that this finding was not justified on the evidence. We have discussed, at  of this judgment, the evidence by which the jury was able to find that the appellant was shown a draft of the letter by Mr Armstrong, and the appellant’s evidence that he had been unable to say, one way or the other, whether that was correct. We have also referred to the evidence that the appellant received from Mr Armstrong a copy of this letter on 24 September 2007. The evidence well supported the judge’s observation that the appellant did see the letter before it was sent. But in any case, it supported the finding that the appellant approved the terms of the letter, because even if he did not see it until 24 September 2007, he was in a position to correct the letter well before Westpac provided the facility in November 2007. After all, the appellant described himself as the managing director of Kleenmaid.
The third alleged factual error was in the judge’s statement in the sentencing remarks that:
“The amount of money fraudulently obtained … was $13 million… None of it was recovered by the bank.”
This is said to have been an error, because the cross-examination of Mr Dickson from Westpac is said to have demonstrated that more than $1 million of the loan was repaid, in addition to fees and interest, “between October 2007 and March 2008”. The evidence upon which the submission relies was a passage in the cross-examination where Mr Dickson was asked to look at an internal document of Westpac, in respect of a credit application dated 27 June 2008. Ultimately, the critical evidence is said to have been this question and answer:
“You were aware, I suggest, between October 2007 and March 2008 EDIS had paid back in excess of $1 million, as well as interest and fees, to Westpac? –That could have been the case.”
A financial report which was in evidence recorded that, as at 29 March 2009, EDIS owed Westpac $12.8 million for commercial bills and $7.6 million on bank overdrafts. On any view, the effect of the fraud had been very large indeed. Further, at the sentencing hearing, there was no challenge to the prosecutor’s submission that none of the loan had been recovered.
The fourth error is said to be in this statement by the judge:
“You provided data regarding expenses for the projections prepared by Robert Drake for the bank that were misleading …”
The financial projections to which his Honour referred were apparently those contained in the document provided to Mr Patane, entitled “Business Plan”, which on each page, was expressed to have been prepared by the appellant as the managing director of EDIS. As we have said earlier, it is very likely that the appellant not only contributed to its contents, but vetted the document before it went out under his name. As we have discussed, the document was a serious misrepresentation, by what it described as the proposed structure for what was to become the Kleenmaid appliance division within the Corporate Group. It was unnecessary for the jury to consider whether particular expenses within that document were understated. The correctness of his Honour’s factual observation could not have mattered for his Honour’s assessment of the degree of the appellant’s criminality, because the document was such a serious and dishonest misrepresentation in more fundamental and influential ways.
For these reasons, the suggested factual errors do not demonstrate that his Honour erred in the exercise of the sentencing discretion. Three of the alleged errors were not errors at all. The fourth of them may have been an error, but it was inconsequential. We now turn to the ground of appeal which is that the sentence for count 1, or the non-parole period for the overall period of imprisonment which was imposed, was manifestly excessive.
At the time of the commission of the offence in count 1, the maximum penalty was 10 years’ imprisonment. It is obvious to say that the sentence imposed here was 90 per cent of that maximum. His Honour was reminded by the prosecutor that 10 years was the maximum penalty. But it is suggested in the appellant’s submissions that the appellant’s then counsel made submissions to his Honour which misunderstood what was the maximum penalty. Be that as it may, in our view there is no reason to suppose that his Honour misunderstood the position, and in particular, had overlooked what he had been told by the prosecutor.
It is submitted that the judge’s sentencing remarks, on one view at least, indicate an intention that the nine year sentence on count 1 should reflect all of the offending across all counts. The basis for this suggestion is this passage from his Honour’s sentencing remarks:
“During the course of submissions, I have been referred to a number of comparative sentences. Perhaps the most comparable are the cases of Daswani and Best. Of course, each case must depend upon its own individual circumstances. The matter of Daswani  QCA 167 involved a fraud of over $12 million but with a loss of $6 million. Here, the charges that I’m concerned with involve a total of approximately $17.2 million with the loss being that full amount. So there is a significant difference.”
This suggestion cannot be accepted. His Honour imposed substantial terms for the other counts. Although those other terms did not increase the period of imprisonment from the nine years imposed for count 1, they increased the non-parole period by 21 months. In our view, it is clear that his Honour did not intend to have the sentence for count 1 reflect the appellant’s overall criminality for all of his offending.
His Honour observed that as a consequence of the collapse of the Kleenmaid business, the appellant had lost whatever money he had put into it, as well as his family home, and that he was declared bankrupt in 2010. His Honour accepted that the risk of re-offending was negligible in his case. The appellant had no prior convictions and was otherwise of good character, with a history of service to the community.
The appellant’s argument focusses upon another remark by his Honour, namely that the appellant was not motivated by personal greed. It is necessary, however, to set out in full what his Honour said in that respect:
“I accept that your criminal conduct was not motivated by personal greed, nor did you obtain a personal benefit, and that is a relevantly distinguishing feature between this case and many others. Nevertheless, you were a director of the company and you and your family had a 50 per cent share in the ownership of that company, and therefore you did have a clear personal interest in that regard. I note also your interest, which arose as a consequence of you personally guaranteeing any debts Edis owed to Westpac, having entered into that guarantee in November of 2007. It does appear to be the case that you adopted the attitude that the debt level to Westpac was so great that any more debt would not make any real difference to your position pursuant to that guarantee, hence the loans the subject of counts 2 and 3.”
This was not an offence which was committed by the appellant for the benefit of others. The appellant had a “clear personal interest” in obtaining funds in order to salvage what was a failing enterprise. It can be said that this was not a fraud which, when it was committed, was intended by the fraudster to have the consequence of causing a substantial loss to the victim. It may be accepted that the appellant hoped that the fortunes of the Kleenmaid companies could be revived by the provision of this funding. But this was not done only for the benefit of others.
Mr Armstrong pleaded guilty prior to the commencement of this trial. For the offence of fraud, he was sentenced to a term of seven years’ imprisonment with an eligibility for parole after serving one-third of that term. On other counts, he was sentenced to a period of two years and eight months imprisonment, with a direction that after serving 10 months, he would be released on condition that he be of good behaviour for a period of five years. There was no period of pre-sentence custody. Those sentences were to be served concurrently and they were ordered, in each case, to commence on the day of sentencing. The first of those sentences had been reduced, under s 13A of the Penalties and Sentences Act 1992 (Qld), on account of Mr Armstrong’s undertaking to give evidence in the trial against the appellant and his brother. There was a similar reduction of the terms imposed for the Commonwealth offences. This Court held that Mr Armstrong should be re-sentenced because of an error in the structure of those sentences. It is unnecessary to discuss that point here. What is presently relevant is the outcome in Mr Armstrong’s case. This Court ordered that upon the fraud count (count 1), Mr Armstrong be sentenced to a term of five and half years, with a parole eligibility date after one year and 10 months had been served, and a term of 16 months’ imprisonment on the other counts, to commence at that point (the eligibility date on count 1) and with release after serving six months. Apart from s 13A, the Court held, the appropriate sentence for the fraud offence would have been seven and half years’ imprisonment with a parole eligibility date after two and half years of that term.
In the case of Mr Armstrong, the sentencing judge found that the applicant had not been “the instigator”, and that he had been “subservient” to the present appellant and his brother. Nevertheless, his Honour remarked, Mr Armstrong had played a “vital and intrinsic role”.
This Court’s judgment in Mr Armstrong’s case was given in September 2016, one month after the appellant was sentenced. His Honour referred to the Armstrong sentence, but of course that which was originally given. It is not said that this caused his Honour to impose an excessive sentence in the present case.
Judged by the benchmark of Mr Armstrong’s sentence, in this Court, the appellant’s term of nine years’ imprisonment cannot be said to be outside a permissible range in his case. He had not pleaded guilty and Mr Armstrong was subservient to him. The appellant had no mitigating circumstances to an extent which were any more substantial than those of Mr Armstrong. The sentencing judge remarked in the appellant’s case that he had demonstrated no remorse and that any cooperation in the administration of justice by the appellant was “minimal at best”.
His Honour emphasised the importance of the consideration of general deterrence in the present case. Considerations of denunciation and punishment were also important.
This was a heavy sentence, judged by the fact that it was 90 per cent of the maximum term which could be imposed. But it was a case of a fraud at a very high monetary level, perpetrated with some months of planning, by an offender with a real personal interest in the fraud succeeding, and who had shown no remorse.
The question is whether the overall sentence, for all counts, was manifestly excessive having regard to the non-parole period also. It is correct to say that the overall result was to require the appellant to serve something very close to 70 per cent of the period of imprisonment in actual custody. As the judge intended, the sentences for the other counts should have some cumulative effect. The appellant had the benefit of that accumulation not affecting the period of imprisonment. The accumulation was effected by fixing the point at which the sentences (or some of them) for the other counts, would commence. The effect was to increase the non-parole period from four and half years to six years and three months, or in other words, to require the appellant to serve at least another 21 months in prison.
We are persuaded that, in total, the overall sentence of nine years, with at least six years and three months to be served, was excessive. We would reduce that non-parole period by six months.
Consequently, we would grant leave to appeal, and vary the non-parole period of 21 months, fixed for counts 2 to 17 and 19, to a period of 15 months.
For these reasons, it will be ordered that:
- The application to add an additional ground of appeal, as ground 20, is refused.
- On each count the appeal against conviction is dismissed.
- Leave is granted to appeal against sentence.
- Allow the appeal against sentence by varying the non-parole period of 21 months, fixed for counts 2 to 17 and 19 from 21 months to 15 months imprisonment.
 Exhibit 43 pp 38-39, 44.
 Exhibit 43 p 2.
 Ibid; Transcript, day 4 p 10.
 Exhibit 43 p 2.
 Exhibit 43 p 2.
 Exhibit 2987 p 14.
 Exhibit 489 p 15.
 Ibid p 6.
 Exhibit 3147.
 Exhibit 3307.
 Transcript,day 7 p 48.
 Exhibit 2931.
 At p 5.
 At p 12.
 At p 13.
 At p 15.
 Transcript, day 15 p 45 and 46, day 16 p 40.
 Exhibit 2931 p 20.
 All other companies, except KM Appliances Pty Ltd, went into voluntary administration on 15 April 2009: Exhibit 355.
 Exhibit 43 p 21.
 Exhibit 43.
 Ibid p 3.
 Exhibit 2957 p 21.
 Transcript, day 67 pp 49-53.
 Exhibit 2906.
 Exhibit 2907.
 Transcript, day 67 p 52.
 Transcript, day 62 p 10.
 Transcript, day 62 pp 10, 11.
 Transcript, day 62 p 11.
 Transcript, day 6 p 46.
 Transcript, day 62 p 10.
 Exhibit 3744.
 Transcript, day 55 p 56.
 Transcript, day 55 p 58.
 The document is Exhibit 3250.
 Exhibit 3250 p 7.
 Exhibit 2956 p 6.
 Exhibit 3250 pp 17-18.
 Exhibit 2956 at p 12.
 Exhibit 2956 p 13.
 Transcript, day 62 p 23.
 Exhibit 3137.
 Exhibit 2957.
 Paragraph 129.
 Exhibit 3781.
 Exhibit 3146.
 Transcript, day 31 p 52.
 Exhibit 3147.
 Exhibit 3011.
 Thompson v The Queen (1989) 169 CLR 1;  HCA 30.
 Morris v The Queen (1987) 163 CLR 454 at 473;  HCA 50 per Deane, Toohey and Gaudron JJ.
 (2011) 243 CLR 400 at 405 ;  HCA 13 at  per French CJ, Gummow and Kiefel JJ.
 M v The Queen (1994) 181 CLR 487 at 493;  HCA 63 per Mason CJ, Deane, Dawson and Toohey JJ.
 (2007) 230 CLR 559 at 596-7 ;  HCA 30 at  (Gleeson CJ and Heydon J agreeing).
 Particulars of the Crown case set out in document marked “E” for identification at the trial.
 Peters v The Queen (1998) 192 CLR 493 at 504 ;  HCA 7 at  per Toohey and Gaudron JJ, cited with apparent approval in Macleod v The Queen (2003) 214 CLR 230 at 242 ;  HCA 24 at  by Gleeson CJ, Gummow and Hayne JJ; see also R v Orchard  QCA 58 at -.
 R v Dillon; ex parte Attorney-General  1 Qd R 56;  QCA 155.
 Transcript, day 8 p 16.
 Transcript, day 8 p 21.
 Exhibit 2924.
 Transcript, day 36 p 47.
 Exhibit 390.
 Transcript, day 36 p 72.
 Exhibit 2954.
 Transcript, day 50 p 22, 33.
 Transcript, day 50 p 22.
 Transcript, day 44 p 27.
 Transcript, day 44 p 28.
 Transcript, day 27 p 27.
 Transcript, day 28 p 2; Exhibit 963.
 Transcript, day 47 p 43.
 Exhibit 43 p 2.
 Transcript, day 56 pp 4 to 5.
 Transcript, day 56 p 6.
 Transcript of the prosecutor’s opening, p 19.
 (1961) 104 CLR 1;  HCA 22.
 Transcript, day 54 p 12.
 The evidence was identified in a document marked for identification as “K”.
 Transcript, day 54 p 24.
 Transcript, day 54 p 26.
 Transcript, day 54 p 27.
 Transcript, day 54 p 28.
 Transcript, day 54 p 36.
 Transcript, day 54 p 38.
 Transcript, day 54 p 39.
 Outline of submissions, paragraph 87.
 Transcript of the prosecution’s closing, day 67 p 64.
 Transcript of the prosecution’s closing, day 67 p 65.
 Summing up, 3 August 2016, p 16.
 Transcript of the prosecution’s closing, day 67 p 53.
 Transcript, day 69 p 13.
 Transcript, day 69 p 14 to 16.
 Appellant’s submissions paragraph 98.
 Transcript, 5 August 2016, p 2.
 Transcript, 5 August 2016, p 5.
 Transcript, 5 August 2016 p 12.
 Transcript, 5 August 2016 p 13.
 Appellant’s submission paragraph 114.
 (1989) 169 CLR 1 at 22;  HCA 30.
 (1989) 169 CLR 1 at 15;  HCA 30 (Gaudron J agreeing at 39).
  Qd R 43.
 (1989) 169 CLR 1 at 9-10;  HCA 30.
 Appellant’s submissions paragraph 121.
 (1997) 188 CLR 1 at 9;  HCA 19.
 Exhibit 366.
 Exhibit 2953 para 2.0. The evidence of the appellant at Transcript, day 55 p 22, day 57 p 20 and day 58 p 33.
 Pre-trial hearing transcript, 25 June 2015, 1-64, l 36.
 Trial transcript day 66 p 30, l 39 to day 66 p 31, l 26.
  1 Qd R 631, 637-638.
 Trial transcript day 66 p 23, l 22 to day 66 p 24, l 6.
 Trial transcript day 44 p 27, ll 33-35.
 Trial transcript day 44 p 36, ll 30-32.
 Trial transcript, Defence closing, 19 June 2016, p 1-33, l 40 - p 1-35, l 4.
 Trial transcript, Summing-up, 4 August 2016, p 46, l 29 to p 47, l 23.
 Dhanhoa v The Queen (2003) 217 CLR 1 at  and .
 (1995) 182 CLR 461.
 See R v Sitek  2 Qd R 284, 293.
 (1987) 163 CLR 561 at 574-575.
 R v Waine  1 Qd R 458 at 463 ;  QCA 312.
 Appellant’s further supplementary submissions quoting from the prosecutor’s address on 2 August 2016 at 1-30, ll29-31.
 This being one of the particulars of dishonesty, according to the judge’s directions to the jury, as we have set out above at .
 See above at .
 Further supplementary submissions, paragraph 14.
 T55-Transcript, day 55 pp 18 to 55-20.
 Exhibit 68.
 Exhibit 43, as referred to above at .
 Save for count 15, where it was disputed that the appellant failed to prevent EDIS from incurring the debt, a point which was not pursued in this Court.
 Summing up, 3 August 2016 T15.
 Summing up, 4 August 2016 T7.
 Appellant’s submissions paragraph 248.
 Appeal Transcript (“AT”) 1-66.
 Appellant’s submissions paragraph 256.
 Appellant’s submissions paragraph 253.
 Exhibit 43 p 2.
 Ibid pp 38-40.
 Ibid pp 41-52.
 Appellant’s submissions paragraph 257.
 AT 1-66.
 Appellant’s submissions paragraphs 257-261.
 Ibid paragraphs 262-265.
 Ibid paragraphs 266-270.
 (1966) 115 CLR 666 at 670-671.
 Appellant’s submissions paragraph 259.
 Ibid paragraph 260.
 Respondent’s submissions paragraph 219.
 Ibid paragraph 223, citing ASIC v Plymin (No 1) (2003) 175 FLR 124 at , , Treloar Constructions Pty Ltd v McMillan (2017) 318 FLR 58 at  and Emanuel Management Pty Ltd (in liq) v Foster’s Brewing Group Ltd (2003) 178 FLR 1 at  ff.
 Respondent’s submissions paragraph 216.
 Respondent’s submissions paragraph 224.
 Exhibit 43 pp 3, 39, 40.
 Summing up, 3 August 2016 T13.
 Summing up, 3 August 2016 T14.
 Exhibit MFI “U”.
 Summing up, 3 August 2016 T15.
 Appellant’s submissions paragraph 265.
 (2001) 53 NSWLR 213 at 224-225 .
 AT 1-67.
 Appellant’s submissions paragraph 270.
 Exhibit 383.
 Transcript, day 7 pp 28 to 31.
 Transcript, day 56 p 14.
 (2010) 247 FLR 261;  QCA 371.
 (2009) 103 SASR 309 at 318 -.
 Transcript, day 39 pp 76 to 77.
 Appellant’s submissions paragraphs 285-292.
 Exhibit 3202.
 Summing up, 3 August 2016 T10.
 Exhibit 3199.
 Transcript, day 40 pp 6 to 7.
 Transcript, day 40 pp 7 to 8.
 Transcript, day 40 pp 8 to 9.
 Transcript, day 40 pp 9 to 10.
 Transcript, day 40 p 13.
 Transcript, day 40 pp 11 to 45.
 Transcript, day 40 pp 104 to 105.
 Transcript, day 40 p 105.
 Transcript, day 40 p 106.
 Transcript, day 41 p 14.
 Transcript, day 39 pp 3 to 4.
 Transcript, day 39 p 12.
 Transcript, day 39 p 53.
 Transcript, day 39 pp 52 to 53.
 Transcript, day 39 p 73.
 Exhibit 2937, Sponsor Memo & Credit Approval Summary p 1.
 Exhibit “MFI U” p 9.
 Transcript, day 52 pp 90 to 92.
 Transcript, day 53 pp 19 to 22.
 AT 1-69.
 Transcript, day 59 p 16; Appellant’s submissions paragraph 306.
 Closing address, 29 July 2016 T50; Appellant’s submissions paragraph 308.
 AT 1-69.
 Appellant’s submissions paragraphs 309, 310.
 Ibid; Appellant’s submissions paragraph 311.
 Transcript, day 4 p 27; Exhibit 43 p 5.
 Transcript, day 4 p 30.
 Exhibit 43.
 Exhibit 43 p39 (Table 9.2).
 Transcript, day 4 p 39.
 Transcript, day 4 pp 39 to 40.
 Transcript, day 4 p 57; Exhibit 44 p 6.
 Exhibit 44 p 7.
 Transcript, day 4 pp 39 to 40.
 Transcript, day 4 p 40; Exhibit 43 p 40 (Table 9.3).
 Exhibit 43 pp 39, 51 (Table 9.8).
 Exhibit 43 p 40 (Table 9.3).
 Transcript, day 4 p 23.
 Transcript, day 4 pp 40 to 41; Exhibit 43 p 43 (Figure 9.2).
 Exhibit 43.
 Ibid p 3.
 Transcript, day 4 p 41.
 Transcript, day 4 p 11; Exhibit 43 p 2.
 Appellant’s Supplementary Submissions paragraph 2.
 Transcript, day 1 pp 19 to 20.
 At paragraphs 78, 290, 294-296.
 Transcript, day 5 p 45.
 Transcript, day 5 p 45.
 Exhibit 43 p 9 (Figure 5.5), p 35 (Figure 7.3) and p 51 (Table 9.8) respectively.
 Exhibit 50.
 Appellant’s Supplementary Submissions paragraphs 13 to 18.
 Exhibits 405, 462, 463, 467, 843, 978 and 984.
 Exhibits 464, 994, 3924.
 Exhibit 841.
 Exhibit 1200.
 Exhibit 998.
 Exhibit 998.
 Exhibits 1147, 1122.
 Exhibit 410.
 Exhibit 1003.
 Exhibit 1008.
 Exhibit 412.
 Exhibit 873.
 Exhibit 3748.
 Transcript, day 27 pp 55 to 56 (Ms King); Transcript, day 22 p 82 (Ms Dimmock).
 Exhibit 3791.
 Exhibits 2190, 2172.
 Exhibits 1814, 1655.
 Exhibit 1632.
 Exhibit 3782.
 Exhibit 402.
 Exhibit 1257, 1108, 1093, 1111.
 Exhibit 3763.
 Appellant’s Further Supplementary Submissions paragraph 17.
 Ibid paragraph 22.
 Ibid paragraph 19(c).
 Ibid paragraph 19(a).
 Transcript, day 6 p 35.
 At .
 cf R v Nagy  1 Qd R 63;  QCA 175.
 R v Armstrong  QCA 243.
  QCA 243 at .
  QCA 243 at .
- Published Case Name:
R v Young
- Shortened Case Name:
R v Young
 QCA 3
Gotterson JA, McMurdo JA, Mullins JA
31 Jan 2020
- White Star Case:
|Event||Citation or File||Date||Notes|
|Primary Judgment||DC1503/14 (No Citation)||05 Aug 2015||Date of Conviction (Farr SC DCJ).|
|Primary Judgment||DC1503/14 (No Citation)||12 Aug 2016||Date of Sentence (Farr SC DCJ).|
|Appeal Determined (QCA)|| QCA 3||31 Jan 2020||Application to add an additional ground of appeal refused; appeal against conviction dismissed; application for leave to appeal against sentence granted; appeal against sentence allowed; sentence varied by varying the non-parole period of 21 months, fixed for counts 2 to 17 and 19 from 21 months to 15 months imprisonment: Gotterson and McMurdo JJA and Mullins JA.|