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R v Young QCA 131
SUPREME COURT OF QUEENSLAND
R v Young  QCA 131
YOUNG, Andrew Eric
CA No 26 of 2020
CA No 42 of 2020
DC No 1503 of 2014
Court of Appeal
Appeal against Conviction & Sentence
District Court at Brisbane – Date of Conviction: 10 January 2020; Date of Sentence: 7 February 2020 (Devereaux SC DCJ)
15 June 2021
20-21 August 2020
Fraser and Mullins JJA and North J
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of fraud with a circumstance of aggravation – where a corporate restructure split multiple new and existing companies into two groups: Orchard Group and Corporate Group – where before the restructure a company EDIS in the Corporate Group operated the spare parts business for the appliances sold by the Orchard Group – where as part of the restructure the business of importing and sale of appliances under the Kleenmaid brand was transferred to EDIS – where the appellant was at all relevant times a director of each of the companies in the Orchard Group, but was not a director or the secretary of any of the companies of the Corporate Group at the time of the restructure – where EDIS by its director Mr Armstrong made a loan application to its bank to assist in the takeover of the appliance business without disclosing the financial information of the Orchard Group – where the appellant had no contact with the bank in respect of the loan application – where the appellant refused to disclose financial statements of the Orchard Group to the bank and instructed Mr Armstrong to advise the bank that they would not be disclosed – where that was conveyed by Mr Armstrong to the bank – where EDIS did not disclose during the loan application that the deposits paid by customers for the goods sold by EDIS would be paid to Order House, which was a company in the Orchard Group, and held by Order House until delivery of the appliances was required – where that arrangement with Order House made the financial statements of the Orchard Group relevant to EDIS’ loan application – where the appellant knew and approved of the course taken by Mr Armstrong in respect of EDIS’ loan application – whether the appellant counselled or procured Mr Armstrong to commit the offence of fraud – whether the verdict of guilty was unreasonable or unsupported by the evidence
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of 17 counts of insolvent trading concerning debts incurred by EDIS between 3 July 2008 and 8 April 2009 (the relevant period) – where EDIS was insolvent during the relevant period – where the appellant ceased to be a director of EDIS more than a year prior to the relevant period – where the appellant was engaged by EDIS as a contractor – where there was evidence the appellant supervised, directed and instructed employees of EDIS, managed the cash flow, prioritised payments to creditors and negotiated with suppliers during the relevant period – whether the appellant was a de facto director of EDIS – where proof that the appellant was a de facto director excluded that he was acting as an “officer” (other than as a de facto director) as defined in s 9 of the Corporations Act 2001 (Cth) as an alternative hypothesis
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of 17 counts of insolvent trading concerning debts incurred by EDIS during the relevant period – where EDIS was insolvent during the relevant period – where many EDIS creditors were paid by Orchard KM which was in the Orchard Group – where the Kleenmaid business was “cash starved” during the relevant period and the appellant was closely involved in managing the cash flow – whether the failure of the appellant to stop EDIS incurring debts when he suspected EDIS was insolvent was dishonest
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of fraud with a circumstance of aggravation concerning the transfer of funds from the company Orchard KM to England & Young Holdings, a company associated with the appellant and his family and a former business partner and his family – where the funds were transferred two days prior to Orchard KM being placed in voluntary administration – where the transfer was done on the appellant’s instruction – where the appellant was the sole shareholder of England & Young Holdings – whether the prosecution could exclude as an alternative hypothesis to dishonesty that the appellant had an honest belief that England & Young Holdings as a secured creditor was legally entitled to the funds transferred on the basis of Orchard KM’s liability under a facility agreement in favour of England & Young Holdings – whether it was open to the jury to be satisfied that the funds transfer was dishonest
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – where the appellant was convicted after trial before a jury of one count of fraud with a circumstance of aggravation – where the self-represented appellant cross-examined Mr Armstrong who was a prosecution witness and asked whether the appellant had procured or counselled Mr Armstrong not to disclose the full nature of the relationship between EDIS and the Orchard Group to the bank – whether the trial judge erred in directing the jury that the questions were “of limited use” – whether the direction was procedurally unfair
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – OTHER CASES – where the appellant was convicted after trial before a jury of one count of fraud with a circumstance of aggravation – where there was evidence of conduct of the appellant occurring in Queensland relating to the acts and omissions constituting the offence – where the trial judge ruled that no jurisdictional question arose and declined to direct the jury that the offence had to have been committed in Queensland – whether the trial judge erred in refusing to direct the jury to consider the question of jurisdiction
CRIMINAL LAW – EVIDENCE – OPINION EVIDENCE – EXPERT OPINION – where the appellant was convicted of 17 counts of insolvent trading – where expert witnesses testified that EDIS was insolvent in March 2008 and March 2009 – where this evidence was inadmissible – whether the error in admitting inadmissible expert opinion amounted to a miscarriage of justice – whether the proviso should be applied on the basis there was no substantial miscarriage of justice
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – OTHER CASES – where the appellant was convicted after trial before a jury of 17 counts of insolvent trading – where the trial judge gave directions in relation to a list of circumstances that if satisfied would help the jury conclude that the appellant suspected EDIS was insolvent – where the trial judge in summing up dealt with evidence relating to the incurring of each debt that was subject of an insolvent trading count – whether the trial judge erred in directing that any one circumstance would, if satisfied, help the jury conclude that the appellant had a suspicion of insolvency
CRIMINAL LAW – PROCEDURE – FITNESS TO PLEAD OR BE TRIED – DETERMINATION OF ISSUES – where the appellant was convicted after trial before a jury of two counts of fraud with a circumstance of aggravation and 17 counts of insolvent trading – where the appellant became self-represented mid-trial when he withdrew instructions to his solicitors and those solicitors and the counsel they briefed were given leave to withdraw – where the appellant suffered episodes of transient global amnesia and experienced a deficit in auditory verbal memory – where a psychiatrist and a psychologist expressed their opinion that the appellant was unfit to be tried, but another psychiatrist considered that the appellant was fit to be tried – where the Mental Health Court determined that the appellant was fit to be tried in relation to State charges – where the appellant made an application to invoke the process under s 645 of the Criminal Code (Qld) where the jury would be required to consider whether the appellant was of sound mind – where the trial judge declined to put the issue to the jury – whether there was a real issue about the fitness of the appellant to be tried – whether the trial judge should have required the jury to consider and determine whether the appellant was fit to be tried
Corporations Act 2001 (Cth), s 9, s 95A, s 588G
Crimes Act 1914 (Cth), s 20B
Criminal Code (Qld), s 613, s 645, s 668E
Mental Health Act 2016 (Qld), s 159, s 616
Eastman v The Queen (2000) 203 CLR 1;  HCA 29, cited
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296;  FCAFC 6, cited
Kalbasi v Western Australia (2018) 264 CLR 62;  HCA 7, cited
Kesavarajah v The Queen (1994) 181 CLR 230;  HCA 41, considered
Libke v The Queen (2007) 230 CLR 559;  HCA 30, cited
M v The Queen (1994) 181 CLR 487;  HCA 63, cited
Peters v The Queen (1998) 192 CLR 493;  HCA 7, cited
R v Dillon; Ex parte Attorney-General  1 Qd R 56;  QCA 155, cited
R v Khallouf  VR 360;  VicRp 38, cited
R v Ogawa  2 Qd R 350;  QCA 307, considered
R v Presser  VR 45;  VicRp 9, considered
R v Tier (2001) 121 A Crim R 509;  NSWCCA 53, cited
Sandell v Porter (1966) 115 CLR 666;  HCA 28, cited
Young v Director of Public Prosecutions (Qld)  QCA 247, considered
S C Holt QC for the appellant/applicant
L K Crowley QC, with P Kinchina, for the respondent
Anderson Legal for the appellant/applicant
Director of Public Prosecutions (Commonwealth) for the respondent
- FRASER JA: I agree with Mullins JA’s reasons and the orders proposed by her Honour.
- MULLINS JA: The appellant was convicted after trial in the District Court before a jury of two counts of fraud with a circumstance of aggravation (counts 1 and 20) and 17 counts of insolvent trading (counts 2-17 and 19). On count 1, he was sentenced to imprisonment for a period of eight years. On count 20, he was sentenced to imprisonment for one year to be served cumulatively with the sentence for count 1. The parole eligibility date was fixed at 9 January 2024 and a declaration was made in respect of 28 days of pre-sentence custody served between 10 January and 6 February 2020.
- Counts 2-17 and 19 are Commonwealth offences under s 588G(3) of the Corporations Act 2001 (Cth). The imprisonment for the Commonwealth offences was ordered to commence on 9 January 2024. The appellant was sentenced to imprisonment for a period of two years for each of counts 2 and 3, imprisonment for a period of 12 months for each of counts 4-11, 16, 17 and 19 and imprisonment for a period of three months for each of counts 12-15. It was ordered that the sentences of 12 months’ imprisonment be served concurrently with each other and the sentences on counts 12-15, but cumulatively on the sentence for each of counts 2 and 3, and the sentences of three months’ imprisonment be served concurrently with each other and with the sentences on counts 4-11, 16, 17 and 19, but cumulatively on the sentence for each of counts 2 and 3. A recognisance release order was made in respect of the period of imprisonment for the Commonwealth offences in terms that the appellant was to be released after serving one year of the three year period, upon giving security by recognisance in the sum of $500, conditioned on his being of good behaviour for a period of two years.
- The appellant appeals his convictions and applies for leave to appeal against his sentence. For the purpose of ground 6 of his appeal against conviction, the appellant applies for leave to adduce evidence in the form of his affidavit affirmed on 25 June 2020 and the affidavit of his brother Mr Bradley Young affirmed on 25 June 2020.
- The appellant’s trial was conducted as an etrial. Most of the documents that were tendered had a document identification (ID) number that was an alphanumeric combination. A sequential exhibit list was also maintained, but the trial judge, the parties and even witnesses usually referred to the documents by the alphanumeric ID. For consistency with the trial record, I will therefore use the document ID rather than the sequential exhibit number in referring to exhibits with a document ID.
Grounds of appeal
- There are eight grounds of appeal:
Ground 1: The verdicts on each count are unreasonable or cannot be supported by the evidence.
Ground 2: The learned trial judge erred in directing the jury as to count 1.
Ground 3: The learned trial judge erred in failing to direct the jury as to the need for the offence in count 1 to have been committed at Maroochydore in the State of Queensland.
Ground 4: The learned trial judge erred in directing the jury as to counts 2 – 17 and 19.
Ground 5: The learned trial judge erred in not leaving s 645 of the Criminal Code (Qld) for the jury to consider.
Ground 6: The appellant suffered a miscarriage of justice by the continuation of the trial following the appellant becoming self-represented.
Ground 7: The appellant was denied a fair trial as a result of the learned trial judge refusing to allow prosecution witnesses to be recalled for further cross-examination by the appellant.
Ground 8: The appellant suffered a miscarriage of justice as a result of rulings made by the learned trial judge in relation to the appellant's closing address to the jury.
- Whilst the decision on the appeal was reserved and before the court had reached a conclusion in respect of the unreasonable verdicts ground, the court concluded that the appellant must succeed on ground 5 which meant that the appeal had to be allowed. As a result of this being indicated to the parties, the appellant was released on bail on 10 December 2020. In view of the outcome of the appeal, it is unnecessary to deal with grounds 6, 7 and 8 of the appeal against conviction and therefore the applications for leave to adduce evidence. It is also unnecessary to deal with the sentence application.
- The conclusion that I have reached on ground 1 which is set out below is that the appellant would not have succeeded on the appeal on that ground in respect of any of the counts. That has the consequence that there should be a new trial of counts 1-17, 19 and 20. I have considered grounds 2, 3 and 4 in case the issues raised by those grounds arise on any new trial.
- Apart from count 20 which was a charge on the indictment against the appellant alone, the appellant had been charged jointly with his brother Mr Bradley Young and Mr Gary Armstrong. Mr Armstrong pleaded guilty to counts 1, 2 and 3 and was a witness in the trial against the appellant. Mr Bradley Young’s trial preceded the appellant’s trial and he was found guilty of counts 1-17 and 19.
- The charges arose out of the corporate restructure of the Kleenmaid business. The following summary is taken generally from the admissions made by the appellant pursuant to s 644 of the Criminal Code (Qld) (the Code).
- The appellant founded the Kleenmaid business in 1980. Initially it involved distribution of spare parts for appliances (spare parts business) and traded through Orchard KM Pty Ltd (Orchard KM). The business gradually expanded. In 1985, the business commenced importing appliances for sale to general retailers (appliance business). In 1996, the business began operating company owned stores under the Kleenmaid brand. In 2001, the business began opening franchised stores under the Kleenmaid brand. The spare parts business was sold by Orchard KM to EDIS Service Logistics Pty Ltd (EDIS) in 2001. Prior to 2007, the appellant suffered a heart condition requiring a triple bypass and, by 2007, he wanted to reduce his involvement in the business.
- Prior to 2007, the main trading entity of the Kleenmaid business was the Orchard Unit Trust. Kleenmaid Holdings Pty Ltd (Kleenmaid Holdings) held 100 per cent of the 20 units in the Orchard Unit Trust. Orchard KM was the trustee of the Orchard Unit Trust and in that capacity operated the appliances business, provided warranty to customers and provided exclusive rights to EDIS to supply Kleenmaid spare parts. From 2005 Kleenmaid Retail Pty Ltd (Kleenmaid Retail) had operational control of Kleenmaid non-franchised stores and Orchard KM (as trustee for the Orchard Unit Trust) was 100 per cent shareholder in Kleenmaid Retail. Kleenmaid Customer Solutions Pty Ltd (KCS) was established in 2005 as an after sales service for in-warranty products and out-of-warranty products. Initially, Orchard KM owned 100 per cent of the shares in KCS, but in May 2006 Orchard KM sold its shares in KCS to EDIS.
- The restructure of the Kleenmaid business was undertaken gradually in 2007.
- The restructure involved nine new companies with an additional company, My Kleenmaid Rewards Pty Ltd (Rewards) being incorporated later in 2009. The restructure involved a split of the existing and new companies into two groups: a group with Kleenmaid Holdings as the head company (Orchard Group) and a group with a new company Kleenmaid Corporate Pty Ltd (Kleenmaid Corporate) as the head company (Corporate Group). The core operations of the Kleenmaid business were transferred from the Orchard Group to the Corporate Group, including the operation of the appliance business from the Orchard Unit Trust to EDIS. EDIS commenced operating the appliance business on 1 December 2007.
- The Orchard Group comprised Kleenmaid Holdings, as the holding company of the Orchard Group, Orchard KM as trustee of the Orchard Unit Trust, Kleenmaid Retail which operated five company-owned stores, Manlyvale Pty Ltd (Manlyvale), Kleenmaid Pty Ltd (Order House), KM Intellectual Reserve Pty Ltd (Intellectual Reserve) and Rewards. The latter four companies were new companies. Orchard KM was the registered owner of the Kleenmaid trademark, provided warranty to customers, provided exclusive rights to EDIS to supply Kleenmaid spare parts and continued to hold the outstanding orders for the appliance business and spare parts business after they were transferred to EDIS.
- The Corporate Group comprised Kleenmaid Corporate which was the holding company of the Corporate Group and held the licence agreement for use of Kleenmaid trademarks, EDIS, KCS, Lifestyle Appliances Corporation Pty Ltd which was the franchisor of 15 Kleenmaid stores, Lifestyle Appliances Sales Pty Ltd which was responsible for franchise marketing and promoted new franchises, Kleenmaid Property Pty Ltd which leased store premises that were sublet to franchisees, Bizco Retail Pty Ltd (Bizco) which provided sales support, coaching and mentoring to franchise owners and arranged fit out of Kleenmaid stores, and Kleenmaid Appliances Pty Ltd (Kleenmaid Appliances). Apart from EDIS and KCS, the other companies in the Corporate Group were new companies.
- At the commencement of the trial, a diagram of the companies in the Orchard Group and the companies in the Corporate Group (document Q00000010) was tendered.
- At all relevant times the appellant was a director of each of the companies in the Orchard Group. The appellant had been a director of EDIS between 15 January 2002 and 1 June 2007, a director of KCS between 18 August 2005 and 1 June 2007 and the secretary of KCS between 18 August 2005 and 29 March 2007. He was otherwise not a director or the secretary of the other companies in the Corporate Group.
- On 29 December 2008 receivers and managers were appointed to Orchard KM by GE Commercial Corporation (Australia) Pty Ltd (GE). On 22 January 2009 the receivers and managers retired as Orchard KM entered into a deed of settlement with GE (document B00206520).
- On 9 April 2009 and 15 April 2009, the appellant, Mr Bradley Young and Mr Armstrong placed all companies in the Orchard Group and the Corporate Group (except for Rewards) into voluntary administration and Messrs Hughes, Greig and Lombe of Deloitte Touche Tohmatsu (Deloitte) were appointed as the voluntary administrators.
- At the meeting of creditors on 25 May 2009, the voluntary administrators were appointed as the liquidators of the companies in the Orchard Group and the Corporate Group (except for Rewards).
Particulars of the counts
- At the outset of the trial, the jury were provided with the prosecution’s particulars for each of the charges. In respect of count 1, the prosecution put its case against the appellant on the basis that he was either a principal offender under s 7(1)(a) of the Code or a party to the offence under s 7(1)(b), (c) or (d). (There was no case based on s 8 of the Code.) The basis of the appellant’s criminal responsibility was then particularised as follows:
“2. At all material times, the [appellant] and the other directors within the Kleenmaid Group, Bradley Young and Gary Armstrong, each knew:
a. of the precarious financial position of the Orchard Group;
b. the only way the business could continue operating was to obtain a cash injection from a financial institution; and
c. the only way the business could obtain such finance was by applying for funding through an applicant entity that was not encumbered by the substantial debts of the Orchard Group, so that such debts would not need to be disclosed.
- Consequently, the [appellant] knew, approved of, and agreed with the other directors Bradley Young and Gary Armstrong that:
a. Gary Armstrong would make a finance application to Westpac to obtain funds;
b. the purported purpose of the funding would be represented as being to enable EDIS Service Logistics Pty Ltd (EDIS) (which was part of the Corporate Group) to acquire the Kleenmaid appliances business from the Orchard KM Pty Ltd (Orchard KM) (which was part of the Orchard Group);
c. the full relationship and nature of the arrangements between the Corporate Group and the Orchard Group would not be disclosed, and instead Corporate Group would be represented as:
i. being independent of the Orchard Group; and
ii. dealing with Orchard Group on a commercial, arms-length basis.
- Knowing these matters and that the finance would be/was sought in the dishonest circumstances set out below, the [appellant] refrained or refused to disclose to Westpac, either himself or through Gary Armstrong, the true state of affairs.”
- During the trial, the respondent provided further explanation of the particulars in paragraph 3 as another way of expressing paragraph 3 to which the trial judge referred in the summing up:
“… that before Gary Armstrong applied for the finance, the [appellant] was present at meetings with Bradley Young and Gary Armstrong where Bradley Young proposed that (a) EDIS be used to apply for finance and (b) the Orchard financials should not be handed over and the [appellant] agreed or approved or supported that plan… .”
- The benefit gained as a result of the application made to Westpac by EDIS which was approved by the bank was particularised as the Westpac Business Finance Facilities totalling $13m for EDIS for specific approved purposes, including the purchase of display stock and working capital requirements for stock ($3m), working capital ($1.5m), to fund the EDIS appliance division ($7m) and to assist with importing of appliances ($1.5m).
- There were admissions as follows. In October and November 2007 Westpac approved finance to EDIS in the sum of $7m by way of a commercial bill facility, $3m by way of overdraft, a further $1.5m by way of overdraft, invoice finance of $1.5m and a temporary overdraft of $1.5m. The commercial bill of $7m was made available on 13 November 2007 and EDIS received into its Westpac account the amount of $6,947,647. A further $2,888,553 was advanced to EDIS’ Westpac account on 13 November 2017 from the overdraft amount of $3m. A further $1.5m from the temporary overdraft facility was also made available to EDIS through its Westpac account on 30 November 2007. A total amount of $11,336,200 was received by EDIS from Westpac in November 2007 of which $10,310,000 was transferred to Orchard KM between 13 November and 14 December 2007. Between 13 and 22 November 2007 the sum of $7.7m was paid out of the Orchard KM account to which the EDIS funds had been transferred and all the payments related to debts that had been incurred by Orchard and some payments were made in relation to invoices dating back to June 2006.
- The circumstances of dishonesty were particularised in paragraph 7 as:
“The benefit was dishonestly gained because the finance was sought and obtained in the following circumstances:
- a.the true nature of the relationship between the Corporate Group and the Orchard Group companies was not disclosed, and Westpac was led to believe that:
- i.the Corporate Group and the Orchard Group, and in particular EDIS and Orchard KM, were separate and distinct businesses; and
- ii.all transactions between the two were conducted on a commercial arms-length basis, when in fact it was one operation;
- b.the serious debt position of the Orchard Group, and in particular Orchard KM, was not disclosed to Westpac;
- c.the Orchard Group financials were not provided to Westpac despite being requested;
- d.the circumstances of the sale of the shares in EDIS was not disclosed to Westpac, and in particular that:
- i.Gary and Carol Armstrong transferred their shares in EDIS to Kleenmaid Holdings Pty Ltd (an Orchard Group company) for no, or nominal, consideration;
- ii.Kleenmaid Holdings Pty Ltd then transferred the shares in EDIS to Kleenmaid Corporate Pty Ltd (the holding company for the Corporate Group) for $9.88M;
- iii.and the method by which the above transfer was to be accounted for in company accounts was by recording a $9.88M loan from Kleenmaid Holdings Pty Ltd to Kleenmaid Corporate Pty Ltd;
- e.the financials/figures provided to Westpac represented that the Corporate Group companies had retained earnings of $12M, but failed to disclose a loan of approximately $9.88M owed by the Corporate Group to Orchard Group (arising out of the sale of shares from Kleenmaid Holdings Pty Ltd to Kleenmaid Corporate Pty Ltd), which reduced retained earnings to $2M;
- f.Westpac were led to believe that title and possession of the existing purchased inventory would be transferred to EDIS upon acquisition of the Kleenmaid appliances business, and it was not disclosed that:
- i.the Orchard Group would instead retain the inventory, and there would be no such transfer of these assets to EDIS; and
- ii.EDIS would only receive inventory gradually on a transitional basis, as and when delivery of orders was required;
- g.the following ‘Order House’ arrangements were not disclosed to Westpac:
- i.customer deposits for sales made by EDIS would be received by Kleenmaid Pty Ltd (Order House);
- ii.the funds received by Order House would be used for other purposes, including for payment of Orchard Group debts, rather than being retained and held in trust; and
- iii.EDIS was only able to receive payment of the customer deposits held by Order House after issuing an invoice to Order House at the time when the order was to be delivered, and the invoice was on terms that payment by Order House was required within 30 days from the end of the month.
- h.the moneys borrowed from Westpac were not used for the purposes for which they were sought and approved, but rather were used to pay debts of the Orchard Group.”
- In relation to counts 2-17 and 19, the basis of the appellant’s criminal responsibility was particularised as a principal offender on the basis that he was a de facto director, as at all times relevant to those counts, he acted in the position of a director by performing functions for the Kleenmaid Group including EDIS that included supervising, directing and instructing staff and employees, controlling the finances of the business and dealing and negotiating with suppliers and creditors. (The respondent referred to the aggregation of the Orchard Group and the Corporate Group as the Kleenmaid Group and I will use the description “Kleenmaid Group” for the same purpose.) Lengthy particulars were then provided of the circumstances on which the prosecution relied to prove the appellant suspected that EDIS was insolvent at the dates of each of the transactions. The creditor whose debts were the subject of counts 2 and 3 was Westpac. CEO Global Logistics Pty Ltd was the creditor whose debts were the subject of counts 4-15. Mitchell & Partners (Qld) Pty Limited was the creditor whose debts were the subject of counts 16, 17 and 19.
- In respect of each of the insolvent trading offences, the prosecution had to prove that the appellant failed to prevent EDIS incurring the debt and that failure was dishonest. It was particularised that it was dishonest, because he was aware of the Kleenmaid Group’s parlous financial state and he could not have had any realistic expectation that the Kleenmaid Group would be able to repay any further debts incurred by the Group, but failed to direct staff not to incur debts and failed to cease incurring debts on behalf of the Kleenmaid Group.
- The prosecution’s case against the appellant for the count 20 fraud was based on his being a principal offender. The benefit gained was particularised as the appellant directing Kleenmaid employees to transfer $330,000 from the bank account of Orchard KM to England & Young Holdings Pty Ltd which was effected on 7 April 2009. The particulars of why the benefit was gained dishonestly were the circumstances that the appellant knew the parlous financial state of the Kleenmaid Group and there was no more ability for it to keep trading, the appellant was contemplating the appointment of administrators, the appellant knew there were limited funds remaining in all bank accounts associated with the Kleenmaid Group and the only funds left in EDIS were earmarked to pay the staff wages, the transfer advantaged England & Young Holdings over other secured creditors, and the appellant and his wife and the appellant’s former business partner, Mr England, all stood to benefit financially from the transfer.
Ground 1: Unreasonable verdict – count 1
- The approach the court must take where the ground of appeal is that the verdict was unreasonable or cannot be supported by the evidence is to ask the question whether the court 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: M v The Queen (1994) 181 CLR 487, 493. It is also relevant to have regard to the observations in R v Young  QCA 3 (Young) at  that “a challenge to a conviction upon this ground requires more than the identification of evidence which was exculpatory” and, consistent with what was said by Hayne J in Libke v The Queen (2007) 230 CLR 559 at , that the question for the appellate court is whether it was open to the jury to be satisfied of guilt beyond reasonable doubt which is whether the jury must, as distinct from might, have entertained a doubt about the appellant’s guilt.
- It was common ground at the trial in relation to count 1 that the appellant had no contact at all with Westpac in respect of the application for the $13m loan that was made to EDIS. Although the prosecution case for count 1 was left to the jury on the basis the appellant either did the relevant acts as principal or was liable pursuant to any of paragraphs (b), (c) or (d) of s 7(1) of the Code, there were two aspects of the particulars which the prosecution focused on in the trial as to the conduct of the appellant to prove him guilty of count 1 pursuant to s 7(1)(d) of the Code. These were, first, that the appellant knew, approved of and agreed with Mr Bradley Young and Mr Armstrong for EDIS to apply to Westpac for the loan for a purpose known not to be its true purpose and to withhold deliberately information about the full relationship and nature of the arrangements between the Corporate Group and the Orchard Group and, second, the appellant “refrained or refused” to disclose to Westpac “the true state of affairs”. On the basis that it was Mr Armstrong who conveyed to Westpac that the Orchard Group financials would not be provided, the prosecution case was that the appellant’s conduct amounted to counselling or procuring the commission of the offence by Mr Armstrong.
- In order to deal with the issue of whether the verdict in respect of count 1 was unreasonable or unsupported by the evidence, it is necessary to set out in some detail aspects of the relevant evidence.
- Mr Drake is a tax agent and accountant who did some contract work for Kleenmaid in 1999, took over the role of the financial controller in about 2001 for about six months and then was a finance consultant to Kleenmaid leading up to the restructure. His evidence-in-chief was as follows. Mr Drake prepared for Mr Armstrong on 13 April 2007 a preliminary restructure proposal diagram version 1 (document B00394503A). Mr Drake then prepared an extensive briefing document in May 2007 (document B00394512) that was a proposal to update and rename Kleenmaid Group entities. The initial proposal was that a customer of a company or franchised store would pay a deposit for goods that was received by Order House. Order House would hold onto the deposit and use the funds as it needed to before delivery of the product, such as paying commissions to franchisees. When the goods were due for delivery, the order would be forwarded to EDIS which was the company that made the sale and delivered the product and EDIS would raise an invoice to Order House that would then make payment of the deposit to EDIS.
- The briefing document set out proposed changes to existing entities. In relation to stock, it noted that stock would remain in Orchard, although it would diminish in value as items were delivered, and that stock would be used by EDIS to satisfy orders it had the responsibility to deliver. It stated:
“Each month Orchard will invoice EDIS for stock used in this manner and this will result in a decreasing value of stock in the books of Orchard. The main warehouse stock should be sold within six months.”
The briefing documents proposed that product importation and wholesaling would become part of EDIS. In dealing with the impact of the restructure on EDIS in relation to stock in the same briefing document, it proposed that EDIS would set up new accounts with suppliers and import product directly and build its stock level up over time, but until that occurred EDIS would source its stock from Orchard’s existing stock holdings. It proposed that the value of the Orchard stock would not be recognised in the financial accounts of EDIS, but would be tracked in EDIS’ accounts for management purposes.
- Mr Drake explained that it was his view when preparing the briefing document, if the stock were transferred from Orchard to EDIS, it would attract a significant amount of stamp duty.
- Before the restructure Mr Armstrong was in charge of finance, Mr Bradley Young who had previously been the sales manager and had control of franchising had taken on the role of managing director and “was, more or less, running the show” and the appellant was trying to retire, so he had a lesser role. The appellant had the relationship with the suppliers, because that was a personal relationship he had built up over many years and he still went and visited the overseas suppliers. Those roles continued after the restructure. After the restructure, the appellant was still heavily involved with cash flow to the overseas suppliers, because of his relationship with them.
- On 9 June 2007 Mr Drake forwarded to Mr Armstrong a spreadsheet he had prepared that showed Kleenmaid’s funds’ position in the future as between the existing Orchard Group and the new group based around EDIS (document B00394514). The funds’ position for the existing group showed a total shortfall of $68m. It included an estimate of the cost of the warranty on products sold prior to the restructure that was likely to be incurred over the next five years. The documents showed that $68m would need to be achieved on a sale for the goodwill of the business to cover the existing group’s liabilities.
- Mr Drake did modelling for the new business in around July 2007. The information for the Orchard Group was not going to be supplied to the bank, because that was the appellant’s side of the business. It was Mr Armstrong and Mr Bradley Young who were looking after the new Corporate Group and it was their side of the business that was going to the bank. It was Mr Armstrong who told Mr Drake that they would not be showing the Orchard balance sheet to the bank.
- Prior to the restructure being implemented, each of Mr Armstrong and his wife held six shares in EDIS. Mr Drake understood that they held those shares in trust “for the unit holder of the Orchard Unit Trust” which was Kleenmaid Holdings. On 30 November 2007 Mr Drake had prepared for Mr Armstrong suggested minutes of meeting (document B00394517) for the transfer of the shares held by Mr and Mrs Armstrong in EDIS to Kleenmaid Corporate, subject to the approval of Westpac as the mortgagee with the shares, with an effective date of the transfers of 1 November 2007.
- Mr Drake gave the following further evidence in cross-examination. One of the things that EDIS was to do differently was to recognise revenue from orders when the goods were delivered. This was an in anticipation of a public float. Mr Stable was the project manager looking after the switch over. He prepared an overview of the changes to the accounting systems that he sent to Mr Drake on 13 August 2007 (document B00188174). This overview emphasised that EDIS would be the main operating entity, but that Order House would hold the deposit until the goods were delivered and installed and the deposit would then be transferred to EDIS. The overview noted that use would be made of inter entity loan accounts and settling up on a regular basis, as “[d]ue to the very large number of transactions between the different entities it is not practical to make payments via bank transactions all the time”.
- Mr Drake had prepared forward-looking models that he provided to the accountants William Buck that were engaged by Westpac. He explained by reference to the model (document B00165753) his estimation of the time period in which orders were delivered from the date of sale. It also contained an analysis of expected cashflow from customers and expected outflows to creditors for payment of stock. In re-examination, Mr Drake was taken to the William Buck report dated 7 November 2007 (document B00580488) and the balance sheet at page 11 which was a FY08 Forecast Balance Sheet commencing November 2007 that showed the inventory in current assets of approximately $12.6m. Mr Drake confirmed that indicated acquired inventory.
- Mr Drake identified two documents (documents B00487106 and B00487107) that were in his handwriting and that were probably produced in the third quarter of 2008 (which Mr Drake clarified in re-examination was a reference to the third quarter of calendar year 2008). The second of the documents shows two options in relation to the transfer of shares in EDIS from Mr and Mrs Armstrong to Kleenmaid Corporate through Kleenmaid Holdings. The value of $9.88m that was attributed to the share transaction was conceived by Mr Drake in August 2008 based on the equity of EDIS at that time on which advice was obtained from accountants PKF. Mr Drake only discussed the valuation with Mr Armstrong.
- Mr Armstrong’s evidence-in-chief was as follows. The businesses operated by Orchard and EDIS were operating “fairly independently”. The spare parts business operated by EDIS was based in Sydney and Mr Jan Proos was the general manager. Mr Armstrong was the CFO for both businesses and was based at Maroochydore. There was a change in roles from about December 2005 between the appellant and Mr Bradley Young. Mr Bradley Young had been the sales and marketing manager and became the managing director. The appellant had medical issues and wanted to reduce his involvement and continued as a director of Orchard. Mr Bradley Young was active in making policy decisions and the appellant continued to look after product warranties, service and product selection. The restructure proposal came about in the first quarter of 2007. Mr Bradley Young made a presentation to the appellant and Mr Armstrong at the Maroochydore office describing his vision for the restructure. At that stage EDIS’ business had a positive cash flow, but Orchard was struggling with cash flow and profitability. The struggling position of Orchard was a matter for discussion at meetings held each couple of months attended by Mr Bradley Young, the appellant and Mr Armstrong.
- When EDIS had acquired the spare parts business in 2001, Mr Armstrong had applied on behalf of EDIS to Westpac for finance for the purchase. In 2007 EDIS still had a finance facility with Westpac and Mr Armstrong was the person who dealt with the bank on behalf of EDIS.
- Mr Bradley Young’s objective for the restructure was to create an entity for a “liquidity event”, either a float or a private sale within a period of two or three years. The biggest change with the restructure was that EDIS was to conduct the business of importing and selling the appliances. A lot of work was put into developing the restructure with legal advice obtained to protect the intellectual property of the business and a project team comprised of accountants and systems people planning the restructure. Mr Armstrong had numerous discussions with Mr Bradley Young about the restructure. The appellant was less involved in the development of this project, as his involvement was primarily with service and warranty. Some weeks after Mr Bradley Young had done his initial presentation about the restructure, he mentioned finance would be required as part of the plan. It was likely that the appellant was present for this discussion, but Mr Armstrong could not recall. The appellant would have been involved in some of the subsequent meetings that worked on the finance application. The proposal to the bank was drafted between Mr Bradley Young and Mr Armstrong. It was proposed that the inventory would be sold to EDIS and the bank asked to fund that purchase. (That was reflected in the email sent by Mr Armstrong to the appellant and Mr Bradley Young on 18 August 2007 (document B00195168) that attached an outline of the presentation to be made to Westpac, including the comment that strength would be added to the bank’s security position by increased inventory of $12m. Mr Bradley Young emailed Mr Armstrong and the appellant on 7 September 2017 (document B00195533) to arrange a meeting on that day to “cover off” a number of matters, including the Westpac information.)
- At meetings between Mr Bradley Young, the appellant and Mr Armstrong, it was discussed that the application to the bank would be by EDIS for funding and Orchard’s information would not be required or given. That was an “instruction” from Mr Bradley Young and the appellant.
- The application for finance by EDIS was made by Mr Armstrong to the banker with whom he had been dealing with at Westpac in relation to the spare parts business, Mr Dickson. The initial letter to Westpac from EDIS dated 14 September 2007 (document B00620172) (the application letter) seeking a facility in connection with the operation by EDIS to import, distribute and wholesale Kleenmaid products through retail, commercial and wholesale channels as a result of “long-term agreements with the Kleenmaid Group” was drafted by Mr Armstrong at Mr Bradley Young’s direction and signed by Mr Armstrong.
- The application letter referred to the proposed change of ownership of EDIS in that Mr and Mrs Armstrong would be selling their shares to Kleenmaid Corporate which the application noted would require the approval of Westpac as mortgagee of the shares. The application letter observed that Westpac’s security position would be “strengthened by the new arrangements” and, in particular, the value of Westpac’s charge over EDIS would be “strengthened to the extent that the gross value of assets increases as a result of the new activities”. The application letter dealt with inventory funding as follows:
“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 application letter attached a chart (document B00620173) that was described in the application letter as showing the new structure of the EDIS Group following the changes proposed by the restructure. (It should be noted that the chart was limited to the Corporate Group other than Kleenmaid Appliances and did not include or refer in any way to the Orchard Group.)
- Mr Armstrong and Mr Bradley Young met with Mr Dickson on 18 September 2007. During the process of applying for the finance from Westpac, Mr Armstrong was asked on one occasion for the “financials of Orchard”. He relayed the request to both Mr Bradley Young and the appellant and both of them said “no”. Mr Armstrong conveyed to the bank that the appellant, as the director of Kleenmaid “felt that it was a private business and he didn’t need to disclose the financials of Orchard”.
- Mr Armstrong had referred in his evidence to a number of years previously when EDIS was seeking funding from the bank and that the appellant “had clearly indicated that he wasn’t interested in giving financials for … anything other than Orchard’s borrowing”. When the proposal was being discussed in the appellant’s presence by Mr Bradley Young presenting to Mr Armstrong and the appellant, Mr Armstrong thought “it was repeated that [the appellant] said he wasn’t willing to provide financials for EDIS’ borrowing”. Mr Armstrong stated that “at least in my mind it was very clear that Orchard wasn’t a suitable borrower”, because of cash flow issues, and even though “the financial statements were passable”, he considered the cash flow issues could have been a source of concern for a lender.
- Mr Armstrong forwarded the email which he received from Mr Dickson dated 11 October 2007 attaching the conditional letter of offer in relation to EDIS’ purchase of the appliance division of Kleenmaid to Mr Bradley Young and copied to Mr Andrew Young on 15 October 2007 (document B00733950). The appellant sent an email to Mr Armstrong on 9 November 2007 (document B00195553) that congratulated Mr Armstrong “getting the deal over the line” and inquiring “When will GB be able to begin dispersing funds?”. The reference to “GB” was to Graham Baker with whom the appellant worked “to ensure that the suppliers were paid in order of what [the appellant] thought was the priority, and so he was just looking forward to being able to sit with Graham Baker and … allocate those funds [being the proceeds of the funding from Westpac to EDIS] to the correct suppliers”.
- After the restructure, Order House was set up to receive the orders and the money paid by customers. That was done at the direction of Mr Bradley Young. A lot of orders (and deposits) were received long before delivery of the goods was required. It was not necessary to hold inventory to cover all orders that were on hand, but enough inventory in the warehouse to cover those deliveries for the period that it was determined needed to be covered. EDIS knew nothing about the order until delivery was required. The funds held by Order House were made available for the operation of the business, so that Order House did not always have cash equal to the value of customer deposits. When an order was received in the Orchard Group, it was recognised as revenue immediately and, at the same time, the cost of providing the product to a customer was recognised as an expense. The customer deposits were at times around $30m. Because of the cash flow challenges that the Orchard Group had, the business relied on new orders coming into fund deliveries of products for old orders. It was a situation that was “not secure”. That issue was raised by Mr Armstrong with both Mr Bradley Young and the appellant before the restructure.
- Mr Armstrong’s evidence during cross-examination was as follows. Mr Armstrong confirmed that the proposal from Mr Bradley Young for the restructure always contemplated a licence agreement between the Orchard Group and EDIS. Mr Armstrong agreed with the appellant’s statement that the appellant had never agreed with him nor approved him making an application to any bank, including Westpac, for the funding of EDIS that was required to execute its role under the licence agreement. Mr Armstrong then agreed with the proposition put by the appellant that the appellant never agreed with him nor approved his representing that EDIS would be acquiring Kleenmaid’s appliance business from Orchard. Mr Armstrong stated that he “never did put that position to the bank” and confirmed the reason that was never put was there never was an acquisition, but simply a licence agreement. Mr Armstrong also agreed with the proposition that the appellant never agreed with him, nor approved that Mr Armstrong “would not disclose the full relationship between and nature of the agreement between EDIS and Orchard, including EDIS being independent of the Orchard Group”. Mr Armstrong also agreed with the proposition put by the appellant that the appellant never agreed with him, nor approved, that Mr Armstrong would not disclose the full relationship between and nature of the agreement between EDIS and Orchard, including EDIS dealing with Orchard Group on a commercial arm’s length basis.
- Mr Armstrong confirmed that the funds obtained by EDIS from Westpac were used for the purposes that were represented to Westpac. Mr Armstrong also confirmed that the appellant had never provided the financial statements of Kleenmaid Pty Ltd at any time from 2001 to 2007 whenever Westpac may have requested them, but the appellant did provide the “financials” for Kleenmaid Pty Ltd to his own bankers and to whomever else the appellant chose to do so during the same period.
- Mr Armstrong’s evidence in re-examination included the following. There were discussions between Mr Armstrong and the appellant about the financial position of the Orchard Group, but primarily in relation to cash flow issues, as the appellant was directly involved in managing the cash flow. When Mr Bradley Young came up with a plan for the restructure, the proposal for finance was not considered until a couple of months later. There was no discussion about which entity would be used for the purpose of applying the finance, as the restructure was in full swing by the time funding was addressed and there was no doubt that EDIS was the vehicle that was going to be used for the liquidity event in the future to which the restructure was directed. The appellant was present with Mr Armstrong when Mr Bradley Young was presenting about EDIS being the borrower. Mr Armstrong thought it was repeated by the appellant that he was not willing to provide “financials” from the Orchard Group for EDIS’ borrowing. Mr Armstrong said that it was “understood” by Mr Bradley Young, the appellant and himself that Orchard was not a suitable borrower because its cash flow issues would have been “a source of concern” for a lender, even though the financial statements were “passable”. The only reason that the financial statements of the Orchard Group were not provided to Westpac was that the appellant had maintained his position in the meetings with Mr Armstrong and Mr Bradley Young that the Orchard Group was not the borrower and its “financials” were for his private company.
- When Mr Bradley Young put the proposal for the restructure at the meeting in March 2007 at which Mr Armstrong and the appellant were present, the appellant was happy with the prospect of receiving substantial licence fees from EDIS to the Orchard Group. As far as the application to Westpac was concerned, Mr Armstrong considered that the appellant regarded it as the proposal of Mr Bradley Young. The appellant “had some interest in the result of the proposed finance arrangement, but he wasn’t involved in the detail of it … or exactly how it was to be done”. It was to be Mr Bradley Young and Mr Armstrong working on the application by EDIS to Westpac, as Mr Armstrong had the contact with the bank. It was oversight on Mr Armstrong’s part in not informing the bank that the inventory held by the Orchard Group would not be transferred immediately to EDIS, because of the legal advice received by the Kleenmaid Group that stamp duty problems would arise if that occurred. Meetings between Mr Armstrong and Mr Bradley Young or meetings together with the appellant were very informal and there were no minuted meetings.
- The full nature of the relationship between EDIS and Orchard was not disclosed by Mr Armstrong to the bank, because the bank officers did not ask the relevant questions. They were aware of the licence agreement, as it enabled EDIS to sell appliances in place of Orchard. Mr Armstrong answered the bank’s questions to the best of his ability and accurately, but he did not give any information voluntarily. His practice in dealing with finance applications was to provide information that was requested. Mr Armstrong had no right to disclose Orchard’s financial position without the appellant’s permission.
- Mr Dickson who had been the Westpac relationship manager for EDIS since 2001 gave evidence as follows. He was assisted in that role by Mr Gupta. Westpac had approved finance for Bizco in the amount of $5m by way of a commercial bill facility on 29 March 2007 in respect of Bizco’s acquisition from the Kleenmaid Group of the right to provide support service to franchised Kleenmaid Stores. In connection with that proposal, Mr Dickson was advised by Mr Armstrong that Westpac could not access the Kleenmaid financial statements.
- Mr Dickson together with Mr Gupta and their supervising manager Mr Growcock attended a meeting on 18 September 2007 with Mr Armstrong and Mr Bradley Young. At this meeting Westpac sought access to the Kleenmaid financial statements and Mr Armstrong explained that Mr Andrew Young would not allow third parties to access those financial statements, but that Mr Armstrong had done his own due diligence. Mr Dickson understood that the value of Westpac’s securities would increase, as a result of EDIS’ acquiring the inventory from the Kleenmaid Group. The effect of the decisions at the meeting on 18 September 2007 were incorporated into an internal bank discussion paper addressed to Mr Growcock by Mr Dickson dated 2 October 2007 (document B00580460). On 2 October 2007 Mr Dickson had received from Mr Armstrong revised projections for the appliance division of EDIS for two years commencing November 2007 (documents B00580476 and B00580477). (The projected balance sheet for EDIS at the end of November 2007 showed inventory at $12.7m.) A further meeting attended by Mr Growcock, Mr Dickson and Mr Gupta with Mr Armstrong and Mr Bradley Young was held on 3 October 2007, as a result of which Mr Growcock sent a memo to Mr Dickson and Mr Gupta dated 4 October 2007 (document B00580459) that confirmed Mr Growcock’s approval for a conditional indicative letter of offer to be sent by the bank to EDIS. That memo set out Mr Growcock’s understanding of the funding requirement of EDIS to acquire the appliance division of Kleenmaid for approximately $13m, including the purchase of the entire warehouse stock for approximately $7m and the purchase of the remaining stores’ display stock and to cover working capital requirement stock for approximately another $3m. The letter of offer dated 10 October 2007 was sent by Mr Dickson to EDIS (document B00580489). The offer was accepted by Mr Armstrong on behalf of EDIS and dated 13 November 2007.
- In cross-examination, Mr Dickson accepted that he knew the businesses were interdependent when the November 2007 funding was advanced to EDIS, but he had understood their respective businesses were conducted at arm’s length. Mr Dickson confirmed that he had “absolutely no contact with Andrew Young”.
- Mr Gupta and Mr Growcock gave evidence which reflected the evidence given by Mr Dickson.
- Evidence was adduced through registered liquidator Mr Hughes (who had been appointed first as an administrator of the companies in the Kleenmaid Group placed in voluntary administration and then as one of the liquidators) of a number of financial statements and analyses taken from the management accounts of the Kleenmaid Group and other Kleenmaid Group documents available during Deloitte’s administrations that were relied on by the prosecution to prove the parlous financial state of the companies in the Kleenmaid Group, particularly from March 2008. Mr Hughes’ evidence was relied on by the prosecution in relation to all counts. In summarising his evidence below, I have not attempted to confine the evidence to that which related only to count 1, as the relevant evidence was in some instances adduced as part of evidence that dealt with the trading of the Orchard Group and the Corporate Group over a period of time that was relevant to count 1 in some respects and to the other counts in other respects. For the purpose of considering whether the verdict on count 1 was unreasonable, I have had regard only to evidence that was relevant to proving that offence.
- Mr Hughes expressed the opinion that all the companies in the Kleenmaid Group were insolvent from 31 March 2008. He explained that, as at that date, Orchard KM had a significant deficit and that made Order House and EDIS insolvent, as Orchard KM owed Order House a substantial amount which it could not repay and that Order House owed EDIS a substantial amount which it could not repay.
- Mr Hughes showed how he reached that conclusion by reference to the financial statements and analyses. He explained that after the restructure, when a customer paid a deposit for an appliance, the funds went to Order House and funds were generally then transferred from the Order House bank account to Orchard KM as a loan. That resulted in Order House having a growing deposit liability to customers and a growing receivable from Orchard KM. By reference to the summary of balance sheet balances for each quarter for Order House (document Q00000100), the customer deposits were shown as a liability and were $2.3m as at 31 December 2007 and had increased to $17.8m as at 9 April 2009. The same document showed the intercompany loans receivable which Mr Hughes stated were receivable from Orchard KM as $7.66m as at 31 December 2007 and increased to $86.2m as at 9 April 2009. When EDIS filled the customer’s order, instead of transferring the deposit amount in cash to EDIS, the amount owed by Order House to EDIS was shown in intercompany loans payable in Order House’s balance sheet. The amount of the intercompany loans payable by Order House to EDIS as at 31 December 2007 was $4.1m and that increased to $68.2m as at 9 April 2009. As Mr Hughes stated, Order House did not have cash to pay to EDIS because it had gone to Orchard KM. Mr Hughes then undertook the exercise of removing the Orchard KM receivables from the summarised balance sheet of Order House and that resulted in a deficit in the net assets of Order House as at 9 April 2009 of $83.7m (document Q00000111). Without that adjustment, the net assets of Order House were otherwise a deficit of $16,000.
- Mr Hughes produced a summarised profit and loss statement for the Corporate Group and the Orchard Group (document Q00000074) for the financial years ended 30 June 2007 and 2008 and for the period from 1 July 2008 to 31 March 2009 that showed the losses of the Orchard Group before tax were about $10m for the financial year 2007, about $26m for the financial year 2008 and about $17.5m for the period to 31 March 2009. A summary balance sheet for the Kleenmaid Group as at 30 June in each of the years 2006, 2007 and 2008 and the period ended 31 March 2009 and 9 April 2009 (document Q00000075) showed the total net assets of the Kleenmaid Group declined from break even as at 30 June 2006 to a deficiency of $82m by 9 April 2009. Mr Hughes prepared a schedule that showed related party loans from the E & Y Property Trust (of which England & Young Holdings was the trustee) to the Kleenmaid Group that amounted in total to $9.84m (document Q00000080). There were three advances: $4.407m in January 2007, $3.759m in July 2007 and $1.674m in December 2008. From October 2007 until 9 April 2009, a comparison of the closing cash balance of the Kleenmaid Group with the cumulative overdraft showed that, apart from the period between January and March 2008, the business was operating at or around the overdraft limit and that was exceeded increasingly from October 2008 (document Q00000019). The number of payment plans the Kleenmaid Group negotiated and had in place with creditors increased from 5 in September 2007 to 111 in March 2009 (document Q00000024). It is not necessary to summarise all the documents produced through Mr Hughes, as they painted a similar picture of the deteriorating financial situation of the Kleenmaid Group from the end of 2007 through to 9 April 2009.
- It was critical to the prosecution’s case at trial that the separation of the Orchard Group and the Corporate Group for the purpose of the loan application was artificial, as the two groups continued to operate as one business after the restructure. Mr Hughes’ evidence supported that position. Other evidence which supported it was from employed accountant Mr Pearce who confirmed that the Orchard KM bank account known as the NAB No 2 bank account continued to be the transactional bank account for the payment of suppliers of appliances who supplied EDIS after the restructure.
- Mr Baker was employed as a senior financial accountant at Kleenmaid from January 2003 to February 2008. His main role was the cash flow of the business and supervising the accounts payable. During 2007 he was reporting daily by email to the appellant with attached spreadsheets on the cash flow and meeting with the appellant at least a couple of times each week. In terms of the daily updates that Mr Baker provided, there was little or no change after the restructure, as the main NAB bank accounts were used for receiving the income and paying the accounts. Priorities would be set each day for what payments would be made to ensure that suppliers would keep shipping products from overseas. There was never enough cash for all accounts to be up to date. Mr Baker identified many of the emails he sent to the appellant both before and after the Westpac funds were made available.
- In cross-examination, Mr Baker confirmed that the cash flow was concerned with the cash flowing through the NAB No 2 account and that did not include any of the cash receipts from the EDIS spare parts business. It included transfers from Orchard KM to EDIS and payments made from Orchard KM directly to creditors to EDIS. Mr Baker agreed that most payments from the Orchard KM account were to the creditors of the EDIS appliance business. Mr Baker agreed that Orchard KM sold EDIS $10m worth of stock in late 2007 and EDIS paid Orchard KM $10m for that stock. Orchard KM then had to pay its suppliers for a large percentage of that stock.
- Ms King worked as the systems accountant and management accountant for Kleenmaid between January 2007 and February 2008. She reported to Mr Armstrong whom she described as the finance director, but understood the appellant to be a director of the Kleenmaid business. She worked closely with Mr Baker. Ms King prepared the profit and loss report at the end of each month as a spreadsheet that would be distributed to Mr Armstrong, Mr Bradley Young and the appellant and the individual department reports would go to the managers of those departments. After the restructure, the business was operated the same as before the restructure and there was no difference in what Ms King was doing on the accounting side, but the accounting entries were different in different companies. For the period that Ms King worked for Kleenmaid, the profit and loss statement showed consistent losses over a number of months and the balance sheet report showed growing debt.
- Mr Neville commenced working at Kleenmaid in 2000 as the supply manager which involved preparing purchase orders for appliances from overseas suppliers and then distributing them to the retailers. When Mr Neville became a consultant to Kleenmaid in 2006, he continued with the responsibility for the supply from the overseas manufacturers and the shipping of the appliances to Australia. After the restructure, the part of the Kleenmaid appliance business that Mr Neville was responsible for continued to function in the same manner, except that it was noted on documents as EDIS Service Logistics trading as Kleenmaid Appliances. The restructure was introduced to all staff members in mid-2007 by Mr Bradley Young and it was announced that he would be the managing director and that the appellant would move into a separate role as chairman of the business with more to do with the technical evolution and design of products that would brought into the business from overseas manufacturers. Mr Neville reported to the appellant both before and after the restructure and, from his observations, there was no difference in the role that was performed by the appellant after the restructure than he had performed before the restructure. From January 2007 onwards, there were challenges in being able to pay the overseas manufacturers on time. Mr Neville was in contact with the appellant at least daily. The appellant was directly involved with the manufacturers and would be the main person from Kleenmaid’s perspective who would negotiate with the manufacturers when it came to matters relating to finance.
- Mr Neville explained that daily he would typically discuss with one of the accounting team what sums of money were available on that day to pay overseas suppliers. There would typically be a three way discussion between the appellant, Mr Baker and himself or the appellant, Mr Pearce and himself as to the quantity of money that was available and then between the appellant and himself as to how that amount would be split up and paid to particular suppliers. He identified typical email communications that he made with the accounting staff identifying the current status of supply arrangements with suppliers and the demands of payment by suppliers and service providers. One such email to Mr Baker dated 19 February 2007 was document B00306776. It identified three suppliers that had Kleenmaid on “credit hold” which meant that the suppliers were neither manufacturing nor shipping product to Kleenmaid and eight suppliers that were still shipping, but required payment. The email referred to the service provider CEO Global Logistics requiring “catch up payments”. CEO Global Logistics was Kleenmaid’s main international freight forwarder and customs clearance agent or products into Australia.
- Mr Neville explained a series of emails from Mr Charbon who was the managing director for Asia of supplier Brandt. In an email dated 28 September 2007 from Mr Charbon to the appellant (document B00306399), Mr Charbon rejected the appellant’s proposal to pay the amount outstanding of €921,000 by five weekly instalments, pending funding to EDIS on the change of the corporate ownership of Kleenmaid to EDIS. Mr Charbon required Kleenmaid to pay immediately €675,000 and noted “[o]ver the last 4 weeks Kleenmaid paid Brandt Asia only 61kEuro, we cannot accept promises”. In an email to the appellant, Mr Bradley Young and Mr Armstrong dated 25 October 2007 (document B00081636), Mr Charbon set out the issues that Brandt Asia had “following Kleenmaid financial problems and change of structure”. These included that Kleenmaid had failed to pay its due invoices for the last four weeks and the due amount had accumulated to €951,468 which was above their credit limit and did not allow for any more invoicing from Brandt and that it was necessary for Brandt to be able to report to their credit insurer that a regular flow of payments was being received from Kleenmaid to avoid a “declaration of payment incident” which could trigger an audit by the insurer which might suspend its coverage for any future trading. Mr Neville also identified many other emails involving the appellant in negotiations for payments to suppliers.
- Mr Cole as the group credit manager for Fisher & Paykel had dealings with Kleenmaid after Fisher & Paykel purchased De Longhi which was supplying cookware to Kleenmaid. Mr Cole first reviewed the Kleenmaid account early in 2007 when the account balance was about $1.3m, some of which was overdue. Mr Cole dealt with the appellant in relation to repayment plans. Fisher & Paykel received a general notice to suppliers from Kleenmaid on 3 October 2007 about the transition to EDIS as the trading entity for the Kleenmaid Group (document B00081958). The notice was signed by Mr Armstrong as “General Manager – Finance” and requested suppliers to invoice EDIS for product that arrived in Australia from 29 October 2007.
- Fisher & Paykel received another notice to suppliers from Kleenmaid dated 6 October 2007 (document B00081959) that set out the typical questions received from suppliers with Kleenmaid’s answers. The appellant and John Lavender were identified as continuing to manage product selection and technical issues and as continuing to “discuss programs and prices with suppliers”. This notice was also from Mr Armstrong. Mr Cole did not know John Lavender, but did know the appellant as he was the person that he communicated with about “99 per cent of the time”. Mr Cole had notified Mr Neville and Mr Armstrong on 5 October 2007 (document B00081775) that payment was expected as soon as possible of four invoices totalling €203,270 that had been due between 26 July 2007 and 29 September 2007 and noting that further invoices were due for payment on 27 October and 7 November 2007 that totalled €138,672. The email confirmed that under the terms of Fisher & Paykel’s insurance “Kleenmaid have now become a notifiable event” and that, until the account was paid, Fisher & Paykel were unable to supply any further product. Mr Cole explained that, under the terms of the insurance against bad debts, when an invoice becomes overdue for a certain period of time, the insurer has to be notified and the insurer gives instructions, as to the action to take in respect of the debt. If the insurance were cancelled, it meant that Fisher & Paykel could no longer deal with that customer. In that same email chain, the appellant responded to Mr Cole on 5 October 2007 advising him that as part of the restructure “we have two additional funding instalments from our bankers” that was likely to be available towards the end of the following week and proposed payment dates for the six invoices. By 23 October 2007, Mr Cole noted that only one payment of €69,000 had been received, when the appellant had proposed that three payments would be made by then.
- The email from Mr Cole to the appellant dated 5 November 2007 (document B00081948) showed that a new payment plan was entered into by Kleenmaid with Fisher & Paykel that was supported by personal guarantees from the appellant and Mr Bradley Young and the executed documents were sent by email by the appellant to Mr Cole on 14 November 2007. The deeds of guarantee and indemnity signed by the appellant were in respect of the debts of EDIS and Kleenmaid Pty Ltd.
- The appellant submits that Mr Armstrong’s evidence was central to the assessment of the reasons the appellant would not disclose to Westpac the financial statements of the Orchard Group. Unless the prosecution could prove beyond reasonable doubt that the appellant would not disclose the financial statements of the Orchard Group to Westpac, because of an agreement to conceal that information from Westpac that the appellant had made with Mr Bradley Young and Mr Armstrong, there must have been a reasonable doubt that the appellant believed he was lawfully entitled not to provide the financial records of the Orchard Group to Westpac. In light of Mr Armstrong’s evidence that the appellant had a consistent history of refusing to provide financial information about the Orchard Group in relation to loan applications made by other entities, the appellant submits the jury was not in a position to conclude beyond reasonable doubt that the appellant had knowledge of the concealment of other matters that made the non-disclosure of the requested information dishonest. The evidence at its highest indicates the appellant was aware of an application that was being advanced on behalf of EDIS.
- Although the appellant submits that the evidence is incapable of allowing an inference to be drawn beyond reasonable doubt that the appellant agreed to be part of a plan to dishonestly gain a benefit for EDIS, the respondent did not have to prove that there was a formal plan or a formal agreement. The particulars relied on by the prosecution to establish the appellant’s dishonesty were that he “knew, approved of, and agreed” with Mr Armstrong and Mr Bradley Young that the full relationship and nature of the arrangements between the Corporate Group and the Orchard Group would not be disclosed and, relevantly, that the Corporate Group would be represented as dealing with the Orchard Group on a commercial, arms-length basis and, knowing that, the appellant “refrained or refused to disclose to Westpac, either himself or through Gary Armstrong, the true state of affairs”. It was therefore sufficient for the prosecution case to prove something less than an agreement, if the evidence established that the appellant knew and approved of the proposal about EDIS’ business that was to be put to Westpac by Mr Armstrong and Mr Bradley Young for the purpose of the loan application. Knowledge and approval by the appellant of the EDIS proposal to be put to Westpac to obtain a loan that would be used to pay existing creditors of the Orchard Group equated to the appellant’s consent or informal agreement to that proposal being put in that manner.
- The overall evidence about the nature of the relationship between the Orchard Group and the Corporate Group planned for after the restructure, the appellant’s role in the business of the Kleenmaid Group, the specific evidence of the appellant’s knowledge of, interest and involvement in the EDIS’ finance application to Westpac, the appellant’s communications with creditors of the Kleenmaid Group prior to the Westpac funds becoming available in November 2007 which showed which existing debts would be satisfied from those funds, and the anticipated benefit that would therefore accrue to the Orchard Group by the reduction of its existing debts from the loan funds obtained by EDIS supported strongly the prosecution case. It was open to the jury to conclude that the appellant knew and approved of, or otherwise agreed, with the course taken by Mr Armstrong and Mr Bradley Young in respect of EDIS’ application to Westpac.
- The respondent argues that, even if the appellant’s arguments are accepted as to what Mr Armstrong’s evidence showed in agreeing with propositions put to him by the appellant in cross-examination, it was still open on the balance of the evidence (including the contrary evidence of Mr Armstrong) for the jury to find the appellant guilty of count 1 beyond reasonable doubt, if they rejected the evidence elicited from Mr Armstrong in cross-examination.
- The appellant’s so-called entitlement to keep the financial statements of Orchard Group to himself and not disclose them to Westpac in connection with EDIS’ application for finance is critical to the appellant’s argument in respect of count 1. The projected figures of EDIS were put forward to Westpac on the basis that EDIS would be conducting the appliance business pursuant to a licence agreement to use the Kleenmaid brand. The projected figures did not disclose the intention revealed by Mr Drake’s documented proposals that the deposits for the goods to be sold by EDIS were always to be paid to Order House which was in the Orchard Group. There was therefore a failure to disclose to Westpac that EDIS would be deprived, in the first instance, of the use of the significant cashflow generated by the payment of those deposits for the period of time until the delivery of those goods was made and the recoverability by EDIS of those deposits would, in the second instance, depend on the financial capacity of the Orchard Group to disgorge them.
- The circumstances in which the appellant did not disclose financial statements of his group of companies to Westpac when EDIS acquired the spare parts business in 2001 were not the circumstances that applied to the takeover of the appliance business by EDIS in November 2007. By July 2007 the appellant was aware that another company associated with him (England & Young Holdings as trustee) had advanced $8.166m in 2007 to the Kleenmaid Group and prior to (and after) the application was made to Westpac, the appellant was involved on a daily basis in working out the priorities for the payment of creditors of the appliance business on the basis of the amount of cash available to the Kleenmaid Group. The siphoning off of cash from the sale of appliances that was ultimately due to be paid to EDIS to a company within the Orchard Group made the financial position of the Orchard Group in being able to account for that cash to EDIS most relevant to the success of the appliance business to be conducted by EDIS.
- The appellant may have had a consistent history of refusing to provide financial information about the Orchard Group in relation to loan applications by other entities prior to November 2007, but in the circumstances of how EDIS’ appliance business was intended to function which involved a company in the Orchard Group controlled by the appellant, it was open to the jury to conclude that the appellant was dishonest in refusing to disclose that information to Westpac in connection with EDIS’ loan application and counselling Mr Armstrong to proceed with the loan application on the basis that the appellant would not disclose the Orchard Group financial statements. It was open to the jury to reject the attempt by appellant to distance himself from the EDIS’ loan application through Mr Armstrong in this way, where the proposed restructure was planned to involve Order House in the operation of EDIS’ appliance business from the outset.
- Even though Mr Armstrong gave some evidence that was directly supportive of the appellant’s position by swearing the issue to some degree, there was other evidence before the jury from Mr Armstrong, but also from Mr Drake, Mr Hughes and the various employees who shed light on the appellant’s role in relation to critical decision-making in respect of the cash flow of the appliance business and the relationship with the suppliers of the appliances, that left it open to the jury to find the appellant guilty of count 1 beyond reasonable doubt on the basis that the appellant was liable for the offence by counselling or procuring Mr Armstrong to commit the offence.
- There were other deficiencies in the information disclosed to Westpac in connection with the loan application relied on by the prosecution at trial, such as it was never the intent of the appellant that Orchard KM would transfer the title to the inventory to EDIS in exchange for the payment for the inventory and in relation to the transfer of the shares in EDIS, but it is not necessary to traverse these aspects of the evidence in order to dispose of this ground in respect of count 1.
- The verdict of guilty on count 1 was neither unreasonable nor unsupported by the evidence.
Ground 1: Unreasonable verdicts – counts 2-17 and 19
- The insolvent trading counts concern debts incurred by EDIS at various dates between 3 July 2008 and 8 April 2009 (the relevant period), when s 588G(3) of the Corporations Act provided:
“A person commits an offence if:
- (a)a company incurs a debt at a particular time; and
(aa) at that time, a person is a director of the company; and
- (b)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
- (c)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
- (d)the person’s failure to prevent the company incurring the debt was dishonest.”
- The trial judge therefore directed the jury that there were six elements that the prosecution had to prove beyond reasonable doubt for each of the insolvent trading counts:
“The prosecution must prove beyond reasonable doubt:
- [EDIS] incurred a debt;
- [The appellant] was a director of the company at that time;
- The company was insolvent at that time or becomes insolvent by incurring the debt, or by incurring at that time debts including that debt;
- [The appellant] suspected the company was insolvent or would become insolvent as a result of incurring the debt or other debts;
- [The appellant] failed to prevent the company incurring the debt;
- The failure to prevent the company incurring the debt was dishonest.”
- In respect of the element of the offence that EDIS was insolvent at the time the debt was incurred, there is no issue on this appeal that it was open to the jury to find that EDIS was insolvent during the relevant period.
- The appellant submits there were two fundamental defects in the prosecution case against the appellant for counts 2-17 and 19 that result in the verdicts being unreasonable. The first aspect is that the evidence did not permit a conclusion beyond reasonable doubt the appellant was a de facto director of EDIS. (There is no dispute as to the legal principles that apply in determining whether a person is a de facto director: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at -.) In relation to the first aspect, the argument advanced on the appeal depends on drawing a distinction between a director and an officer of a corporation. The second aspect is that the evidence did not permit a conclusion of dishonesty for each count.
- As the appellant had ceased to be a formally appointed director of EDIS on 1 June 2007, the prosecution case against the appellant for insolvent trading was based on the appellant being a de facto director within the meaning of paragraph (b)(i) of the definition of “director” in s 9 of the Corporations Act that includes a person who acts in the position of a director. The particulars the prosecution relied on to allege that the appellant was a de facto director of EDIS during the relevant period were that he acted in the position of a director by performing the following functions for the Kleenmaid Group, including EDIS:
“a. supervising, directing and instructing staff and employees;
b. controlling the finances of the business, including managing cashflow and determining and directing what payments were to be made to creditors of the business and when and how such payments would be made; and
c. dealing and negotiating with suppliers and creditors.”
- The appellant relies on Mr Armstrong’s agreement in cross-examination that the appellant was engaged by EDIS as a contractor under contract for a period of three years to provide the “Kleenmaid product range specified with manufacturer” as set out in the business plan for EDIS dated October 2007 prepared by Mr Bradley Young (document B00165743) and that he was not included in the management chart for EDIS set out in that business plan. Mr Armstrong observed that the appellant was not shown in the chart, because his functions were “in Orchard”. In addition, Mr Armstrong gave evidence that he and Mr Bradley Young, as the other director of EDIS, were not accustomed to act in accordance with the instructions or wishes of the appellant.
- The appellant submits that the functions for EDIS that the prosecution particularised as being performed by the appellant were not functions that showed the appellant was acting in the position of a director and were consistent with his role falling within the definition of “officer” in respect of a corporation set out in s 9 of the Corporations Act. The appellant therefore argues that the jury could not have been satisfied beyond reasonable doubt that the appellant was a de facto director of EDIS, unless the prosecution excluded beyond reasonable doubt that he was otherwise an officer of EDIS falling short of performing the role of a director.
- The purpose of that definition of “officer” in the Corporations Act (in the terms in which it stood during the relevant period) is to provide a general term for persons who are directors or secretaries of a corporation or involved in the decision-making of the corporation that affects substantially the corporation’s business or a person who has the capacity to affect significantly the corporation’s financial standing or in accordance with whose instructions or wishes the directors of the corporation are accustomed to act and extends to insolvency practitioners appointed to the property of, or to administer or liquidate, the corporation or a person administering a compromise or arrangement made between the corporation and someone else. The general term “officer” is then used in the Corporations Act for the purpose of imposing duties and obligations or otherwise regulating the conduct of persons within that designation of officer.
- If it was proved beyond reasonable doubt to the satisfaction of the jury that the appellant was a de facto director, it followed that the prosecution excluded beyond reasonable doubt that he was otherwise acting in a role that fell short of performing the role of a director.
- The respondent relied on the evidence of numerous witnesses at the trial to support its case that the appellant was a de facto director of EDIS during the relevant period. That included the evidence of Mr Pearce, Ms Sheather, Ms Britt, Ms King, Ms Dimmock, Mr Proos, Mr Neville, Mr Cole and parts of the evidence of Mr Drake and Mr Armstrong. (Some of the evidence of Mr Pearce, Mr Neville, Mr Cole, Ms Sheather, Ms King, Ms Dimmock, Ms Britt, and Mr Proos is summarised below, as it is also relevant to the second aspect.) After the change of roles in December 2005, the appellant was designated on emails or letters as “Chairman Kleenmaid Pty Ltd”. After the transition of the appliance business to EDIS, the appellant still showed his position as “Chairman Kleenmaid Pty Ltd” when corresponding with creditors of EDIS until mid-March 2009, when he no longer included the designation “Chairman”.
- All the evidence that indicated the appellant’s role in respect of the operation of EDIS has to be considered. The fact that Mr Armstrong accepted the propositions put to him by the appellant that the appellant was engaged by EDIS as a contractor and was not considered by Mr Armstrong to be a director does not resolve the issue. It was open to the jury to reject that evidence in light of the contrary evidence from Mr Armstrong himself and other witnesses. It was a question of whether it was open to the jury to conclude from the other evidence that the appellant was acting as a de facto director of EDIS.
- There were no formal meetings of the directors of EDIS during the relevant period, but Mr Armstrong confirmed that there were often informal meetings between the appellant, Mr Bradley Young and himself. The provision of monthly management accounts to the appellant in the same form provided to the formally appointed directors of EDIS was consistent with the appellant performing the function of a director of EDIS together with Mr Armstrong and Mr Bradley Young. It is true, as the appellant contends, that the appellant’s functions in EDIS that were particularised by the prosecution could apply to an employee in a senior management position, but it was the leadership the appellant exercised in performing those functions in respect of the significant enterprise of the appliance business to keep the appliance business in operation that indicates his role was in the nature of a director.
- Even though the appellant was no longer a formally appointed director of EDIS, the manner in which he conducted himself with employees, suppliers and other creditors overwhelmingly conveyed that he remained in control of the supply side of the appliance business in a manner similar to the role he performed for Orchard KM when it conducted the appliance business before the restructure; and in that role he was a public face of EDIS. It was therefore open to the jury to find that the appellant was a de facto director. This first aspect of the appellant’s submission to challenge the insolvent trading verdicts fails.
- In respect of the second aspect, the appellant points to particulars relied on by the prosecution for each of the insolvent trading counts and submits the particulars do no more than state the appellant suspected insolvency and continued to incur debts, but that is not sufficient to establish beyond reasonable doubt the element of dishonesty for insolvent trading, as a finding of dishonesty for insolvent trading pursuant to s 588G(3) of the Corporations Act requires more than simply establishing the elements of insolvent trading by a director pursuant to s 588G(2) of the Corporations Act.
- The particulars of dishonesty that were relied on by the prosecution at the trial were:
“The [appellant’s] failure to prevent EDIS from trading while insolvent was dishonest because:
a. he was aware of the Kleenmaid Group’s parlous financial state; and therefore
b. he could not have had any realistic expectation that the Kleenmaid Group would be able to repay any further debts incurred by the Group; but nevertheless
c. failed to direct staff not to incur further debts on behalf of the Kleenmaid Group;
d. failed to cease to incurring debts on behalf of the Kleenmaid Group of companies himself.”
- During the course of the trial when the appellant made a no case to answer submission, the prosecution clarified (as is the case) that the particulars of dishonesty had to be read in the context of the opening words of the particulars that EDIS was trading whilst insolvent. The particulars refer otherwise to the Kleenmaid Group (rather than EDIS) as it was the prosecution’s contention that the Kleenmaid Group (comprising the Orchard Group and the Corporate Group) was being conducted as a single operating entity during the relevant period. The prosecution case was that it was not to the point that EDIS may have still been paying some debts, but that it was trading whilst insolvent and, in those circumstances, the appellant could not have had any realistic expectation that the Kleenmaid Group would be able to pay any further debts incurred by the Kleenmaid Group, because it could not pay all the debts as they fell due.
- On this appeal, the respondent argues that it was sufficient if the jury were satisfied beyond reasonable doubt as to either particular a or b together with either particular c or d. The appellant asserts that analysing the particulars that way alters the case that was pursued during the trial. The reality of the structure of the particulars is that particulars a and b are cumulative and each needed to be proved beyond reasonable doubt, but it was sufficient if the jury were satisfied that either particular c or d was proved beyond reasonable doubt. That is because particulars c and d are cumulative in one sense, but also alternative means by which it was alleged the appellant failed to stop the Kleenmaid Group incurring debts. The failure was either in the appellant not directing staff to stop incurring debts or in the appellant not stopping incurring debts on behalf of the Kleenmaid Group. Such failure would be established only if it were otherwise proved beyond reasonable doubt that the appellant was acting as a director of EDIS and therefore was capable of exercising the power to stop further debts being incurred by EDIS.
- The trial judge directed the jury on the element of dishonesty in both the written directions (MFI NNN) and in the summing up in these terms:
“And, as to element 6, dishonesty has its ordinary meaning. It means dishonest by the standards of ordinary, honest and decent people. Assessing whether an act or a failure to act, failing to prevent a debt being incurred is dishonest, it is useful to identify the knowledge, belief or intent which is said to render the conduct dishonest. Here, it would be… the intent to induce the other party to supply goods or services or finances while suspecting insolvency. As particularised, the failure to prevent EDIS trading while insolvent was dishonest, because he was aware of the Group’s parlous financial state and could not have held a realistic expectation that the Group would be unable (sic) to pay any further debt. It is for you to decide whether the defendant had that knowledge or belief or intent, and, if so, it is for you to determine whether on that account the failure to prevent the company incurring the debt was dishonest.”
- Where the trial judge said “unable” during the summing up (as set out in the above quote), it was clearly meant to be “able” and that was the word that was used in the same direction in the written directions provided to the jury (MFI NNN) and no confusion would have resulted from the slip. The particulars were based on the prosecution contention that the Kleenmaid Group operated as one entity, but the trial judge directed the jury appropriately that ultimately they had to be satisfied that the appellant was a de facto director of EDIS and acting dishonestly in failing to prevent EDIS incurring debts. The direction that “dishonesty” has its ordinary meaning and means dishonest by the standards of ordinary, honest and decent people accords with the direction approved by the court in R v Dillon; Ex parte Attorney-General  1 Qd R 56 at  (per Margaret McMurdo P with whom Morrison JA and Dalton J agreed). That direction followed the direction on the ordinary meaning given to “dishonesty” referred to by Toohey and Gaudron JJ in Peters v The Queen (1998) 192 CLR 493 at  where they also considered that the trial judge should identify the knowledge, belief or intent that renders the act dishonest:
“In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest. Necessarily, the test to be applied in deciding whether the act done is properly characterised as dishonest will differ depending on whether the question is whether it was dishonest according to ordinary notions or dishonest in some special sense. If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people.”
- The trial judge’s directions on dishonesty articulated the prosecution case in the context of the applicable law set out above and clarified for the jury of what they had to be satisfied in order to find dishonesty proved beyond reasonable doubt in a way that mere reference to the prosecution particulars without that explanation of dishonesty did not. It was obvious from the evidence adduced by the prosecution in relation to EDIS’ obtaining the further advances from Westpac that are the subject of counts 2 and 3 that the purpose was to enable EDIS to keep trading, even though EDIS was insolvent, and the purpose of paying the debts to CEO Global Logistics Pty Ltd and Mitchell & Partners (Qld) Pty Limited was to ensure continuity of services to enable EDIS to keep trading, even though EDIS was insolvent. The trial judge therefore set out expressly what was implicit in the prosecution case that the appellant’s intent in obtaining that finance or paying for those services was to induce the other party to supply the funds or services so that EDIS could continue to trade, at the same time that the appellant suspected insolvency.
- During the hearing of the appeal the appellant focused on that part of the direction on dishonesty that suggested to the jury it was “useful” in assessing dishonesty to identify the knowledge, belief or intent which is said to render the conduct dishonest and submits that was wrongly framed. The appellant concedes, however, that the balance of the direction correctly stated the law in directing the jury “to decide whether the [appellant] had that knowledge or belief or intent” and whether on that account the failure to prevent EDIS incurring the debt was dishonest. Taking the direction as a whole, any infelicity in the direction of the use of the word “useful” was corrected by the latter part of the direction.
- The appellant relies on the evidence of numerous witnesses about payment of EDIS’ debts during the relevant period. This included Mr Armstrong’s evidence given by reference to EDIS’ profit and loss statement for quarters ended between September 2006 and March 2009 and the broken period between 1 and 9 April 2009 (document Q00000049B) that was prepared by Mr Hughes from the management accounts. Mr Armstrong also had regard to the balance sheet as at the date of the end of each quarter between September 2006 and March 2009 and the broken period between 1 and 9 April 2009 (document Q00000050). On the basis of these documents, Mr Armstrong estimated that the value of actual payments made to EDIS’ creditors in the period 1 January 2009 to 9 April 2009 was $15.6m. Mr Armstrong in the same exercise for the quarter ended 30 September 2008 concluded that $15m was paid to EDIS’ creditors and for the quarter ended 31 December 2008 that $17.8m was paid to EDIS’ creditors. Witnesses such as Mr Pearce confirmed that over the relevant period EDIS’ creditors were paid from the Orchard KM NAB No 2 account.
- The appellant submits that on the basis of this evidence, the jury must rationally have entertained a doubt as to the claim that the appellant, at the date of each count, had no realistic expectation that any further debts incurred by the Kleenmaid Group would be paid.
- The respondent submits the analysis undertaken by Mr Armstrong during cross-examination of the payment of creditors by EDIS during the relevant period was misleading, as the position of EDIS was affected by the trading in insolvency of other companies in the Kleenmaid Group. In particular, this is reflected in the dramatic increase in intercompany receivables in the balance sheet balances between 30 September 2006 and 9 April 2009 (document Q00000050).
- The respondent relies on the extensive evidence that showed the Kleenmaid business had high cash demands and was “cash starved” throughout the relevant period and the appellant’s close involvement in managing the cash flow. This can be gleaned particularly from the evidence of Mr Pearce, Mr Neville and Ms Sheather.
- Mr Pearce was employed as an assistant accountant at Kleenmaid after he finished his accounting degree between 2004 and the commencement of the administration. From March 2008 when Mr Pearce took over the role of reconciling the cash on a daily basis, including the forecast of debts due for payment, he would email each day the cash flow and forecast for three weeks to the appellant, Mr Armstrong and Mr Bradley Young and then would meet with the appellant to go through the cash flow and work out what was to be paid and what was not to be paid. As a result of the instructions he received from the appellant, he would update the cash flow spreadsheet and pass the information onto the accounts payable team. The appellant would confirm the accounts to be paid to local creditors and the overseas suppliers. There would also be a nine week forecast prepared in respect of the “big ticket” or major items of expenditure that would also be discussed with the appellant. Mr Pearce identified an email dated 17 March 2008 with attachments (document B00442988) as a typical email that he would send early in the morning to the appellant (and copied to Mr Bradley Young and Mr Armstrong) regarding the daily cash flow position. When the appellant went overseas to visit suppliers, Mr Armstrong sometimes stepped in and performed the role of reviewing the cash flow each day with Mr Pearce, but Mr Pearce would still copy the appellant into the daily email and the appellant would telephone from time to time from overseas to go through the cash flow and confirm the amounts to be paid. During Mr Pearce’s employment, there was never enough cash to pay the bills, as and when they were due and he was always looking for ways to get money in or to push out suppliers.
- Mr Pearce sent the appellant an email on 15 December 2008 (document B00371814) after he had a meeting with Mr Armstrong who advised Mr Pearce that Mr Armstrong was taking over the cash flow and that Mr Pearce was to send the details over to him. Mr Pearce asked for confirmation from the appellant. Mr Pearce remained in regular communication with the appellant and they still met and went through the cash flow, but Mr Pearce sent the daily emails to Mr Armstrong and Mr Bradley Young. By the end of January 2009, Mr Pearce had resumed sending the daily emails to the appellant. One of the daily emails sent by Mr Pearce in accordance with Mr Armstrong’s instruction was sent on 30 December 2008 (document B00371821). Despite Mr Armstrong’s instruction, Mr Pearce blind copied the appellant into it. By mid-January 2009, Mr Pearce was training Ms Sheather to take over the cash flow reconciliation process. Subsequently, if Ms Sheather was away, Mr Pearce would fill in for her in doing the cash flow reconciliation.
- Mr Pearce’s evidence in cross-examination included the following. The Orchard KM NAB No 2 bank account was the historical bank account that had been used for many years by the Kleenmaid Group and was set up as the primary spending account with automated systems for payment of suppliers, including EDIS suppliers. Payments were made from the Orchard KM bank account directly to EDIS creditors. Mr Pearce was taken to a cashflow planning document for the NAB No 2 account (document B00442988B) that showed in April 2008 the projected cash receipts primarily from the EDIS appliance business was $1.8m, but by December 2008, the forecast for cash receipts was approximately $1m and that was reduced further during the first quarter of 2009 to $800,000 per week.
- Mr Neville identified many email exchanges that he had with the appellant during the relevant period about cash available to make payments to suppliers and the inability to pay for product to replenish stock. He identified as a typical email that he sent to the appellant and Mr Pearce as one dated 8 December 2008 (document B00306998) that requested them to check and advise status of payments that should be made that week, so that more shipments could be scheduled from the suppliers. There was then a list of the suppliers with the current status of the amount to be paid. The appellant responded to that email by inserting his response or instruction in respect of each supplier’s position. Mr Neville identified an email chain between the appellant and Mr Charbon of Brandt Asia in relation to EDIS’ default under a payment plan in which EDIS was to pay €100,000 to Brandt Asia each week. It showed that on 22 April 2008 there were two payments outstanding for the weeks commencing 7 and 14 April 2008 and that on 26 April 2008 another week had passed without the €100,000 weekly payment being made.
- Mr Cole of Fisher & Paykel also identified email exchanges concerning payment plans and outstanding payments during the relevant period. An example is an email that Mr Cole forwarded to the appellant on 16 May 2008 that had been addressed to Mr Pearce that attached an updated statement as at that date that showed an overall debit balance of €153,616 of which the overdue amount was €85,580 (document B00081777). The appellant responded to Mr Cole on 21 May 2008 with a proposal for paying the overdue amount in two instalments, one of €16,236 on 23 May and the other of €69,345 on 6 June. A Fisher & Paykel employee emailed the appellant on 13 June 2008, noting the second payment proposed for 6 June 2008 had not been received and that those funds were needed to release one identified shipment and a further delay in that payment would result in the postponement of the production and shipment of another order. Another example is the email exchange that commenced with a Fisher & Paykel employee emailing the appellant on 27 November 2008 about the non-payment of €92,437 for invoices dated July 2008 in respect of which €24,237 was due for payment on 11 November 2008 and €68,200 was due for payment on 31 October 2008 (document B00081780). The appellant proposed that those payments be made respectively on 12 and 19 December 2008.
- Ms King identified monthly reports that she prepared after the restructure that showed the consolidated position for the Corporate Group for January 2008 (B00556311) and for the Kleenmaid Holdings Group (or Orchard Group) for January 2008 (document B00556376) which were provided to Mr Armstrong, Mr Bradley Young and the appellant.
- Ms Dimmock worked for the Kleenmaid Group as a management accountant who reported to Mr Armstrong for about 12 months before the companies were placed into voluntary administration. On a monthly basis, she pulled the accounts together at the end of the month and they were consolidated respectively for the Corporate Group and the Kleenmaid Holdings Group (which was the Orchard Group). She identified the index that was prepared for the consolidated accounts for the directors’ perusal for September 2008 (document B00560176) which was typical of the index used each month. That index showed consolidated accounts for all entities in the Corporate Group (and then separate monthly and year to date figures for the appliance business of EDIS) and consolidated accounts for all entities in the Kleenmaid Holdings Group (and then separate monthly and year to date figures for Orchard KM). In addition, there was a monthly gross margin report and payroll reports. Three hard copy folders containing the monthly consolidated accounts were prepared which were given respectively to Mr Armstrong, Mr Bradley Young and the appellant. Each of them received copies of all the documents for both groups.
- Ms Sheather commenced in the role of finance and reconciliation officer at Kleenmaid in late 2008. Ms Sheather succeeded Mr Pearce in the role. Initially she would send the information she collated on the daily cash flow to Mr Pearce to check and then she would send it to the directors. She named them as the appellant, Mr Armstrong and Mr Bradley Young. The appellant would sit with her every day to go through the cash flow. At those meetings the appellant would direct which creditors would be paid and how much they would be paid. Ms Sheather would convey the outcome of her meeting with the appellant to the employees responsible for making the payments. On the occasions when the appellant was overseas, he would telephone Ms Sheather. On one or two occasions, Ms Sheather sent the cash flow email to Mr Armstrong, if the appellant were uncontactable overseas. From a couple of weeks after Ms Sheather started in the role, she became quite stressed from the requests from creditors for payment and conveyed her concerns to the appellant who told her “that he was working on some further finance from Westpac, so it was coming any day now”.
- Ms Britt was the accounts payable manager for Kleenmaid between January and July 2008. Ms Britt reported through Mr Armstrong, but also had daily contact with the appellant about paying creditors, moneys available, the aged creditors and overdue accounts. The contact was mainly via email. The contact would go through both Mr Armstrong and the appellant, but the appellant was the main person who would instruct what payments could be made.
- Many emails, spreadsheets and other documents were adduced into evidence through Mr Baker, Mr Pearce, Ms Sheather and Ms Britt that supported their evidence as to the appellant’s role in prioritising payment of creditors throughout 2008 which, according to Mr Baker’s evidence, reflected his role prior to the restructure.
- Mr Proos commenced working for EDIS in Sydney as spare parts manager in 2000 and became the general manager of EDIS’ spare parts business in 2001. He continued in that role after the restructure. Mr Bradley Young was the Kleenmaid sales and marketing manager when Mr Proos first joined EDIS and was the managing director after the restructure, but the appellant continued to be the “head honcho” or the “man at … the top”, as far as Mr Proos knew. From about 2005 until EDIS went into voluntary administration, Mr Proos would prepare weekly cash flow spread sheets for the spare parts business that he would send to the appellant.
- Mr White worked for Westpac for about nine years until late 2009. He has been a chartered accountant since 1987. He worked in the asset structuring division of Westpac that looked after companies that were struggling to repay the commitments. He became involved with EDIS, when the first report was due from McGrathNicol. Mr White met with Mr Armstrong on 13 February 2009 after the report had been received by Westpac. Mr Morgan and Mr White had a telephone discussion with Mr Armstrong, Mr Bradley Young and the appellant on 13 March 2009 in which Mr White refused a request for funding and he said “we think you’re insolvent”.
- The trial judge directed the jury on the definition of insolvency, in accordance with the definitions of “solvent” and “insolvent” in s 95A of the Corporations Act. On the basis of those definitions, the jury were directed that “a company is insolvent if it is unable to pay its debts as and when they become due and payable” and that “insolvency is a cash flow question: whether the company has the resources to pay debts as and when they fall due”. Mr Hughes’ evidence referred to the indicators of insolvency. The trial judge provided the jury in written directions (MFI NNN) and in the summing up with a list of factors which might indicate a risk of insolvency:
“Continuing losses; Liquidity ratios below 1; Overdue Commonwealth and State taxes; Poor relationship with present Bank, including inability to borrow further funds; No access to alternative finance; Inability to raise further equity capital; Suppliers placing the company on COD, or otherwise demanding special payments before resuming supply; Creditors unpaid outside trading terms; Issuing of post-dated cheques; Dishonoured cheques; Special arrangements with selected creditors; Solicitors' letters of demand, summonses, judgments or warrants issued against the company; Payments to creditors of rounded sums which are not reconcilable to specific invoices; Inability to produce timely and accurate financial information to display the company's trading performance and financial position, and make reliable forecasts.”
- The appellant’s focus on the fact some creditors were paid during the relevant period does not address the question of whether during the relevant period EDIS had the resources to pay all its debts, as and when they became due and payable. If it did not, it was trading whilst insolvent. Even before the commencement of the relevant period, there was a significant amount of evidence that indicated that EDIS was unable to pay its suppliers and other creditors within the usual terms, was entering into payment plans and then renegotiating payment plans, when EDIS failed to make the promised payments. By the commencement of the relevant period, the evidence was overwhelming that EDIS was trading whilst insolvent and the appellant must therefore have suspected that EDIS was insolvent. The question of whether it was dishonest for the appellant not to stop EDIS incurring further debts, when the appellant suspected that EDIS was insolvent, was a classic question for the jury to apply the standards of ordinary, decent people. In the circumstances, it was open to the jury to convict in respect of each of the insolvent trading charges.
- The appellant does not succeed in showing that any of the verdicts of guilty on counts 2-17 and 19 was unreasonable or unsupported by the evidence.
Ground 1: Unreasonable verdict – count 20
- The fraud that is the subject of count 20 concerned the transfer that was an admitted fact on 7 April 2009 of $330,000 from Orchard KM to England & Young Holdings which was a company associated with the appellant and his family and his former partner Mr England and his family. It was not disputed the transfer was done on the appellant’s instruction. The issue for the jury in relation to this count was the element of dishonesty.
- Mr Armstrong gave evidence that he had been asked by the appellant in the morning or in the middle of 7 April 2009 to authorise the transfer of $330,000 to England & Young Holdings and “that the funds would be split between the three of us – Andrew, Brad and I”. Mr Armstrong said that he told the appellant that he was not interested.
- It was admitted that at the time of transfer the appellant was the only shareholder of England & Young Holdings, he and his wife were authorised to make withdrawals from the England & Young Holdings’ account and that in April 2009 some $330,000 was withdrawn from that account of which $196,350 was paid to the appellant’s wife and some $79,000 was paid to Mr England.
- It was not disputed at the trial that the appellant sent an email to employees on 7 April 2009 at 3.27 pm (document B00442787) which directed the employees (including Mr Janif, Ms Sheather and Ms Dimmock) to make the transfer. The appellant’s brother and Mr Armstrong were also copied into the email. Ms Sheather gave evidence that on 7 April 2009 there was only approximately $330,000 available in the account and that she had been reassured by the appellant earlier on that same day that that money was to be used for employees’ wages that were overdue and nothing else. Ms Sheather confirmed in evidence that, after consulting Mr Janif and Ms Dimmock, she arranged for the transfer, as instructed by the appellant. Mr Janif confirmed he authorised the transfer as a signatory to the Orchard KM account after Ms Sheather uploaded the payment. Ms Sheather left the office after doing the transfer and the appellant telephoned her to confirm that the transaction had been done.
- The evidence of Mr Pearce was that he was doing the cashflow on 7 April 2019, when he received a telephone call from the appellant about the transfer of the sum of $300,000 to the England & Young Property Trust. Mr Pearce queried the appellant about the instructions and the appellant advised him it was for “compliance reasons”. Mr Pearce stated that, at that point in time, there were staff wages that were overdue and payments to a number of suppliers that were overdue, but “the most pressing matter being staff wages on that particular day”.
- Mr Morgan and Mr White on behalf of Westpac had declined EDIS’ further funding request for $2.37m on 13 March 2009 and Mr Young notified them on 16 March 2009 (document B00580789) that he had taken steps to introduce additional capital by way of private equity, including through private equity funds. The email of 16 March 2009 made a request for an additional $2.35m that was rejected by Mr White on behalf of Westpac on 17 March 2009 (document B00580788).
- Westpac’s internal records noted on 27 March 2009 that the directors of EDIS were “currently negotiating with potential investors” (document B00580787). Mr White had one telephone conversation with a person from Anchorage who informed him that he had been approached by Mr Bradley Young and that Anchorage agreed to have a serious look at EDIS. Mr White stated that Mr Bradley Young flew to Sydney unannounced on the morning of 7 April 2009 and updated Mr White that he had been in discussions with a private equity firm Anchorage and requested short term funding of $745,000 on the basis of a written proposal (document B00580965) that showed wages outstanding as at 24 March 2009 of $28,000, wages of $256,000 due on 7 April 2009 and requesting a minimum payment for wages of $224,000 within the total minimum payment requested of $745,000. The proposal also showed the amounts outstanding to installers, consultants, exclusive service partners, franchisees and a creditor Schenker which provided warehousing services. Mr White treated the information that was provided by Mr Bradley Young on 7 April 2009 as a request for $1.1m, but with a requested minimum of $745,000 payable on 7 April 2009 to pay the amount due on that day for wages and amounts on account of the debts owed to the other listed creditors. The internal Westpac emails (document B00580966) show that the confirmation by Mr Morgan to Mr White to refuse the request made by Mr Bradley Young was sent at 4.02 pm on 7 April 2009.
- Even though the appellant did not give evidence of the matters he relied on to give the instructions for the transfer on April 2009, he argued to the jury that he had an honest belief that England & Young Holdings was entitled to the funds that he directed be transferred to England & Young Holdings based on the existence of the liability owed by Orchard KM to England & Young Holdings in the order of $18m pursuant to the facility agreement and deed of charge (exhibit 995) which was identified in the evidence of Mr Drake. The facility agreement was entered into on 20 February 2007 and it was supported by the deed of charge that was entered into on the same date. Mr Drake had given instructions to the solicitor to prepare those documents. According to Mr Drake, at the time the facility agreement was entered into the debt was around $10m, but the interest was capitalised, so that the balance secured by the facility agreement by 7 April 2009 was around $18m. Mr Drake referred to other charges, including the GE charge, being registered in priority to the deed of charge in favour of England & Young Holdings.
- As an honest belief to a legal entitlement is not a defence, the appellant relied on what he asserted in his address at the trial was this honest belief based on the facility agreement in favour of England & Young Holdings to put in issue the element of dishonesty for count 20. He argued that the prosecution had to exclude beyond reasonable doubt that his belief as to a legal entitlement was a reasonable alternative hypothesis to his conduct being dishonest.
- The appellant relied on the following evidence. Mr Bayliss who was a partner and director of the private equity investor Anchorage Capital Partners (that specialised in the turnaround of businesses by buying into them and improving them) stated that it was not until after 5 pm on 7 April 2009 that the appellant’s brother was advised that Anchorage was not proceeding further with negotiations. There was other evidence that the funds in the Orchard KM account were not specifically earmarked for staff wages, as the proposal for short term funding presented to Westpac by Mr Bradley Young on 7 April 2009 listed other creditors apart from employees. Although England & Young Holdings was the second secured creditor behind GE, Orchard KM had settled with GE and there was an arrangement in place to deal with the outstanding debt (document B00206520). The effect of this deed of settlement was that there was the acknowledged debt of $2,943,768.04 plus interest at the interest rate calculated under the deed and any moneys owing to GE for costs and expenses incurred by the receivers and managers appointed by GE pursuant to clause 16.2 of the deed was agreed to be paid the appellant by a payment of $250,000 on or before 16 January 2009 and then by weekly payments of a minimum amount of $75,000 with the balance of the debt outstanding to be paid by 8 June 2009. The appellant addressed the jury on the basis that there was no evidence that the terms had not been complied with and that a total of $1m had been paid under the deed by the date of the appointment of the administrators, so the jury should infer that the balance owing as at 7 April 2009 was “minimal” and “was covered many times over by the value of assets that remained in Orchard following the transfer of funds to England & Young”. The appellant relied on the appointment of a receiver by GE in December 2008 as an event of default under the deed of charge held by England & Young Holdings to give rise to the legal entitlement that he asserted England & Young Holdings had under the deed of charge to justify the transfer of the sum of $330,000.
- Despite the appellant’s assertions in respect of the GE debt, the jury would have been able to calculate for themselves that the balance owing to GE under the deed of settlement was more than “minimal” and more than the sum of $330,000 transferred to England & Young Holdings. Even if all the payments had been made under the deed of settlement up until 9 April 2009, there was still in the vicinity of close to $2m owing under the deed of settlement. It was asking the jury to speculate to suggest that there were the assets in Orchard KM to cover GE’s debt.
- The trial judge in summing up on count 20 reminded the jury of the appellant’s statement in the document he had prepared in connection with the appointment of the administrators (document Q00000003) entitled “Events that led to Insolvency KM Orchard / Holdings” that referred to his meeting with Deloitte on 7 April 2009 in Sydney and again on 8 April 2009 in Brisbane, so that at the time he gave the instructions about the transfer of most of the cash then remaining in Orchard KM, he was contemplating the appointment of administrators.
- The jury did not need to be satisfied of all the circumstances particularised by the prosecution to prove dishonesty against the appellant, provided there were sufficient circumstances of which they were satisfied that supported a finding of dishonesty beyond reasonable doubt. It was open for the jury to be satisfied that the appellant’s action in directing the transfer of those funds to a company through which the money could be distributed to the appellant, his wife and former business partner was dishonest in the financial circumstances that applied to Orchard KM at the time of the transfer that was two days before Orchard KM was placed into voluntary administration that the appellant was contemplating would occur. The appellant may have rationalised to himself that England & Young Holdings was entitled to those funds, as he had procured the borrowings from England & Young Holdings between January 2007 and December 2008, when the Kleenmaid Group required further funds to meet its debts. It was open to the jury to find, however, that the appellant knew there was at least the secured creditor GE that had priority over England & Young Holdings’ claim and the effect of the transfer was to strip Orchard KM of its last remaining cash, when Orchard KM was in dire financial circumstances with pressing demands for payment of wages and debts to other creditors that far exceeded the last remaining cash held by Orchard KM.
- The verdict of guilty on count 20 was neither unreasonable nor unsupported by the evidence.
Ground 2: Did the trial judge err in directing the jury as to count 1?
- During the appellant’s cross-examination of Mr Armstrong, the appellant attempted to put propositions to Mr Armstrong to the effect that he (meaning the appellant) did not procure, aid, counsel or enable Mr Armstrong to conceal the true nature of the matters that the prosecution alleged had been concealed from Westpac. The prosecution objected. The trial judge in the absence of the jury made some suggestions to the appellant as to how he could reformulate the questions to avoid objection, and the appellant then read out his reformulated questions. After an adjournment, the prosecution indicated that it would not press the objection to the questions in the form in which they had been read out, apart from one specific question which the appellant then endeavoured to address. The appellant put the questions to Mr Armstrong in the form that had been foreshadowed. The answers favoured the appellant. On this appeal those answers are referred to by the appellant’s counsel as the exculpatory evidence. During the appellant’s address to the jury, he made the point that Mr Armstrong was a prosecution witness and the prosecution had the opportunity to ask him the questions along the lines of those that the appellant had asked in cross-examination and the prosecution had failed to do so.
- This ground is directed at the direction the trial judge gave in the course of the summing up about the form of the questions and that, as a consequence of that form, the answers were of limited use. The trial judge directed the jury in these terms:
“And on this point you will also remember that Mr Young himself asked Armstrong questions along those lines, ‘And did I procure your counselling?’ Those questions, and there was argument about those questions. My direction about this is that the form of question that it was suggested the Crown should ask would probably not be allowed for several reasons, but the most fundamental is that whether Mr Young counselled or procured or aided Armstrong is the very question you have to decide. It is whether on all of the evidence that the Crown has proven to you beyond reasonable doubt that Mr Young procured or counselled. Another way to put it is – sorry – as I said to you a minute ago, Mr Young referred to his own cross-examination of Armstrong in similar terms. Ultimately, the form of the questioning was not objected to, but such questions ask the witness’ opinion about a conclusion, which is the very matter you have to decide.
So, in that form, the question is of limited use. I say all of that because there was some issue about – or a submission that the Crown failed to argue – ask certain questions and there are some reasons why the Crown would not ask certain questions in a certain form. That is my legal direction to you. But getting back to Mr Young’s arguments: Mr Young conceded, I suppose, that he was clearly aware that Gary Armstrong was applying for funds. But Mr Young submitted to you that the questions he was asking Armstrong was whether he did anything to enable or aid, procure etcetera. And the submission is, you would conclude, that Gary Armstrong did all that he did without the approval or agreement of Mr Young and Mr Young was not a party to the loan. And so in answer to some of the questions, Gary Armstrong said that Mr Young did not procure or counsel him to conceal the circumstances of the share sale or the order house agreement. My same direction applies to those sorts of questions.”
- The direction was given in the summing up as a response to a criticism that the appellant had made of the prosecution in not asking similar questions to those the appellant asked, but the appellant now argues that the effect of the direction was to direct the jury that the form of questioning was “of limited use”, because it was an opinion.
- The direction is impugned for two reasons, first, the direction was procedurally unfair, as the appellant had indicated he would need to seek legal advice, if he could not ask questions in the form he was proposing, and then when he reformulated the questions, the trial judge did not inform the appellant at that point in the trial, that he remained of the view that the questions were of limited use. If the trial judge had done so, the appellant could have reformulated the questions further to avoid the defect that was the subject of the direction in the summing up. In any event, it is also argued that the trial judge was not correct in depreciating the value of the answers given by Mr Armstrong merely because he was responding to a question that was directed at the ultimate issue.
- The purpose for which the appellant in his address to the jury used the failure of the prosecution to ask questions of Mr Armstrong as to the ultimate issue required a direction to be given by the trial judge. This arose at the time of the appellant’s address and therefore did not raise the issue of unfairness (that is now pursued on the appeal) at the time the questions were asked. The reality was that the answers given by Mr Armstrong to those questions were expressions of opinion about the ultimate issue for the jury. Because they were not directed to the facts underlying the opinion, the answers were, in the circumstances, of limited use. They could not dispense with the consideration by the jury of whether they accepted other evidence from Mr Armstrong and any evidence from other witnesses relevant to the ultimate issue.
Ground 3: Did the trial judge err in failing to direct the jury that the offence in count 1 had to have been committed at Maroochydore in the State of Queensland?
- Mr Bradley Young’s appeal against conviction in respect of the same indictment was heard and the decision reserved, when the appellant’s trial took place. One of the grounds of appeal by Mr Bradley Young in respect of count 1 was identical to ground 3 in this appeal: see Young at -. In the trial of Mr Bradley Young, however, the question was not raised before the trial judge whether a direction should be given as to the locality of the offence in count 1. As a result of the issue being a ground of appeal by Mr Bradley Young, the respondent raised the issue before the trial judge in respect of the appellant’s trial. Written submissions were made by the appellant and the respondent on this issue. The appellant sought the direction on the basis it was an issue that was raised on the evidence.
- On the basis the trial judge found that the acts alleged to have occurred by the appellant occurred in Queensland and therefore no jurisdictional question arose, the trial judge declined to direct the jury that it had to be satisfied that count 1 was committed in Queensland. As it was raised, the appellant submits it should have been left to the jury and it was for the prosecution to prove jurisdiction on the balance of probabilities.
- The respondent submits that the evidence was unchallenged as to the connection between the conduct attributed to the appellant and Queensland and, as such, there was no relevant factual dispute as to whether the offence in count 1 was committed in Queensland for the jury to decide. The relevant evidence included that the Kleenmaid business was operated principally from Maroochydore and the appellant was mainly working from the head office in Maroochydore. Mr Armstrong gave evidence that the initial meeting where the restructure was proposed took place in the office at Maroochydore.
- There was evidence of conduct involving the appellant relating to the acts and omissions constituting the offence that occurred in Queensland to make the question of jurisdiction a non-issue in the appellant’s trial. There was no error in the judge’s refusal to direct the jury to consider the question of jurisdiction in respect of count 1.
Ground 4: Did the trial judge err in directing the jury on the insolvent trading charges?
- There were four ways in which the appellant submits the trial judge erred in directing the jury on the insolvent trading charges:
- (a)by failing to adequately direct the jury as to an alternative innocent hypothesis advanced by the appellant;
- (b)the directions as to the use that could be made of expert evidence of “insolvency” were erroneous;
- (c)the directions on the element of “suspicion of insolvency” were erroneous; and
- (d)the directions on the element of “dishonesty” were erroneous and put the case to the jury on a different basis to that particularised by the prosecution.
- The appellant’s submission in respect of (a) raises the same alternative innocent hypothesis that has been rejected above in dealing with the unreasonable verdict ground for the insolvent trading charges. Similarly, the appellant’s submission in respect of (d) that the trial judge’s directions on the element of “dishonesty” were erroneous has been rejected above in dealing with the unreasonable verdict ground for the insolvent trading charges.
- In relation to (b), the appellant relies on the classic statement of Barwick CJ (with whom McTiernan and Windeyer JJ agreed) in Sandell v Porter (1966) 115 CLR 666, 670-671 as to the meaning of insolvency and that whether insolvency is proved is a question for the court and not a question for expert opinion:
“Insolvency is expressed in s. 95 as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time-relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. 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.”
- On the basis that whether EDIS was insolvent at the date each debt was incurred that was the subject of an insolvent trading count was an issue of fact for the jury to decide, the appellant submits that the admission of the respective opinions of Mr Hughes and Mr White as to the point of insolvency of EDIS was in error and that the direction of the trial judge that the jury could take those opinions into account in considering that issue was wrong in law. The appellant relies on the approach of Court of Appeal in Young at  in respect of a similar ground of appeal:
“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.” (footnote omitted)
- This aspect of ground 4 is framed in terms of being an error in directing the jury, but the direction was given in respect of the expression of an opinion by an expert which was inadmissible on the authority of Sandell.
- The appellant was represented by counsel and solicitors at trial when Mr Hughes and Mr White gave the relevant evidence and no objection was taken to the expression of the opinion that is now challenged.
- The trial judge gave the jury the usual direction in relation to expert witnesses, giving Mr Hughes’ opinion that EDIS was insolvent by 31 March 2008 as an example of an opinion of an expert witness. The trial judge reminded the jury that they were the sole judges of the facts and that they were entitled to assess and accept or reject any opinion evidence from an expert as they saw fit.
- Mr White’s evidence as to when he said he thought EDIS was insolvent on 13 March 2009 in the course of a telephone discussion between Mr Morgan and Mr White on behalf of Westpac with Mr Armstrong, Mr Bradley Young and the appellant was referred to by the trial judge in the summing up when dealing with count 12 that concerned a debt incurred by EDIS on 31 March 2009. The trial judge referred in the summing up to that evidence from Mr White in terms of being “his perception of the condition of EDIS at that stage in March”. The trial judge then observed:
“It is a matter for you … how much weight you give Mr White’s opinion, of course, taking into account his position and his knowledge of matters.”
- The respondent concedes on the basis of the proscription in Sandell, that was accepted for the purpose of dealing with the ground of appeal in Young at , that the evidence given by Mr Hughes in terms that EDIS was insolvent as at 31 March 2008 was inadmissible, but submits that there was an overwhelming amount of other admissible evidence from which the jury could have concluded that EDIS was insolvent by 31 March 2008 or, at the very latest, 3 July 2008 (being the date of count 2) and as such there was no miscarriage of justice.
- The fact that the expert evidence of Mr Hughes was given in terms of the ultimate issue of whether EDIS was insolvent at the date the debt was incurred that was the subject of each of the insolvent trading counts was not a wrong decision by the trial judge on a question of law, but falls to be dealt with as a miscarriage of justice arising from the admission of evidence in the nature of an inadmissible opinion of an expert expressed on an issue for the jury. On the basis that it was a miscarriage of justice to admit that evidence and then direct the jury on it, the issue is whether the respondent has discharged the onus of showing that the proviso should apply to that miscarriage of justice, pursuant to s 668E(1A) of the Code: Kalbasi v Western Australia (2018) 264 CLR 62 at .
- The directions that were given in respect of the opinion evidence of each of Mr Hughes and Mr White left the jury in no doubt that the issues of fact were for them to decide, even where an opinion was expressed on those issues by the expert. The weight of the evidence was overwhelming in support of the opinion that Mr Hughes did express about the insolvency of EDIS (and the other Kleenmaid companies) from 31 March 2008 onwards and the opinion Mr White expressed on 13 March 2009. The respondent has shown that, notwithstanding the error in the admissibility of the impugned expert opinion, there has been no substantial miscarriage of justice.
- In respect of (c), the appellant’s submission focuses on the directions given by the trial judge on the 17 circumstances listed in paragraph 12 of the prosecution’s particulars as the basis for alleging the appellant suspected EDIS was insolvent at the respective dates of each of the insolvent trading accounts.
- After the trial judge had given directions on the law by reference to the elements of each insolvent trading count (as set out in MFI NNN) the trial judge then took the jury through the particulars relied on by the prosecution. In relation to the suspicion of insolvency, the trial judge stated “there is … quite a list of circumstances which are asserted and … the position being that, if you are satisfied of them or any of them, they would help you to conclude that [the appellant] had the suspicion”.
- Some of the circumstances were expressed in broad terms and had also been the subject of extensive directions by reference to the evidence, when the trial judge summarised the evidence relating to insolvency. These included the first three circumstances:
“a. the financial position of the various companies of the Kleenmaid Group, which were inextricably linked;
- losses were being sustained by the Kleenmaid Group;
- there were significant difficulties with cashflow, and consequent inability to pay creditors and suppliers;”
- The trial judge then went through evidence that was relevant to each of the other circumstances relied on by the prosecution as relevant to whether the appellant suspected EDIS was insolvent or would become insolvent as a result of incurring the debt which was the subject of the particular count.
- The essence of the appellant’s complaint about the direction that if the jury were satisfied as to any one of the circumstances, it would help them to conclude the appellant had the requisite suspicion is it could not be said in respect of some of the circumstances particularised that that circumstance was sufficient to prove beyond reasonable doubt that the appellant had a suspicion of insolvency at the time EDIS incurred a particular debt. In addition, the appellant complains that some of the circumstances listed in paragraph 12 of the particulars occurred after the time debts were incurred for particular counts on the indictment and that may have confused the jury as to the relevance of circumstances that post-dated counts on the indictment.
- The trial judge then proceeded in the summing up to deal with the evidence relating to the incurring of each debt that was the subject of an insolvent trading count. This focused the jury’s attention on the date that the subject debt was incurred. It had been emphasised earlier in the summing up that the appellant had to hold the relevant suspicion of insolvency at the time the debts were incurred. A fair reading of the summing up as a whole, does not result in a conclusion that the appellant’s complaints about the directions on the suspicion of insolvency have any substance.
- The appellant does not succeed in establishing a miscarriage of justice in respect of any of the directions raised by ground 4.
Ground 5: Did the trial judge err in not leaving s 645 of the Code for the jury to consider?
- The context for the decision made by the trial judge which is the subject of ground 5 is that the trial before the trial judge was the third trial that had commenced for these offences against the appellant. The first trial was a joint trial with his brother that commenced on 4 April 2016. By day 9 of that trial, counsel who had been appearing for the appellant was no longer appearing, the solicitors applied for an adjournment and then, on day 11 of that trial, the jury were discharged from returning a verdict in relation to the trial of the appellant. The first trial continued to verdict against his brother. The second trial commenced before the trial judge on 28 August 2017 and the appellant was self-represented. After day 6 of the trial, the appellant was unwell and there was an adjournment for almost two weeks. The trial resumed and on day 22 the jury was discharged from giving a verdict in the trial. The weight of the evidence was overwhelming in support of the opinion that Mr Hughes did express about the insolvency of EDIS (and the other Kleenmaid companies) as at 31 March 2008.
- The third trial commenced on 16 September 2019. The appellant became self-represented on 14 October 2019 (which was day 15 of the trial), when he withdrew the instructions to his solicitors and those solicitors and the counsel they briefed were given leave to withdraw. The appellant applied for a mistrial on the basis he could not defend himself properly, based on unfitness for trial. The appellant provided the trial judge with a transcript of the proceeding in the Mental Health Court on 1 April 2019 and references to the passages where the psychiatrists and neuropsychologist who gave evidence expressed their opinion that Mr Young was not fit for a self-represented trial. The appellant referred to Dalton J’s finding that he was fit for trial, but asserted that finding was only if he had proper representation and assistance. The appellant also informed the trial judge that he was awaiting the outcome of his appeal from Dalton J’s decision. Towards the conclusion of the evidence-in-chief of Mr Hughes, when the appellant was still represented, the appellant’s counsel had requested a full day’s break between the conclusion of Mr Hughes’ evidence-in-chief and the commencement of his cross-examination on the basis that was consistent with suggestions in the Mental Health Court judgment that would give the appellant an opportunity to reflect upon the material. It was apparent from the exchange with the trial judge in respect of that request that the trial judge had a copy of Dalton J’s reasons given on 3 April 2019. On 14 October 2019, the trial judge was of the view that those reasons did not qualify the appellant’s fitness for trial as the appellant asserted. That application made by the appellant on 14 October 2019 was refused and the trial continued with the appellant representing himself.
- The appellant made further applications for a mistrial on the basis that he was unfit for trial as a self-represented defendant on 15, 16 and 17 October 2019 and each of these applications was also refused. The written submission the appellant prepared for the purpose of the application on 15 October 2019 set out specific references to Dalton J’s reasons and the evidence of Professor Byrne and raised with the trial judge that he should send the appellant back to the Mental Health Court, because he was now self-represented. Further oral submissions were made late on 15 October 2019 on what was the proper course, including whether s 645 of the Code was invoked. The trial judge reserved his decision and gave reasons on 16 October 2019 for refusing the application. After that ruling, the appellant provided a further written submission on that day seeking a mistrial which was immediately refused. It became apparent at the conclusion of the evidence on 16 October 2019 that the appellant had not been accessing the documents on the etrial website and the trial judge indicated that arrangements would be made for the appellant to have that access. On 17 October 2019 the appellant provided another written submission to support an application for a mistrial. The trial judge considered the submission was an attempt to reopen the decision that the trial judge had previously made and refused to do so. On 30 October 2019 the trial judge gave additional reasons for rejecting the series of mistrial applications made by the appellant on 14, 15, 16 and 17 October 2019. In the course of those reasons, the trial judge noted that he had dealt directly with the appellant “on and off since early 2017”, the trial “had commenced and travelled a substantial distance” and some prosecution witnesses had given evidence for a third time.
- On 31 October 2019, Ms Holliday of counsel instructed by solicitors McGinness & Associates appeared to inform the trial judge that a reference had been made to the Mental Health Court on that day in relation to the State charges (counts 1 and 20) which had the effect of suspending the trial in relation to the State charges, pursuant to s 616 of the Mental Health Act 2016 (Qld). It was foreshadowed that if the prosecution wished to continue with the trial, the lawyers for the appellant would provide the reports that supported the Mental Health Court reference to the trial judge on the basis that would then enliven s 645 of the Code in respect of the Commonwealth charges. Arrangements were made by the prosecution for the Commonwealth Director to have the carriage of the Mental Health Court proceeding and to bring on the hearing at short notice. As a result the trial was adjourned until 5 November 2019.
- The appellant applied on 5 November 2019 for the trial to be suspended or aborted in relation to the Commonwealth charges on the basis the jury had heard evidence in relation to the State charges. On 6 November 2019, the trial judge adjourned the trial until 11 November 2019, pending the trial judge being provided with the psychiatrist’s report that was relevant to the threshold question of whether there was a real question about the fitness for trial of the appellant that should go to the jury pursuant to s 645 of the Code. On 11 November 2019 the trial judge was informed that the reference to the Mental Health Court was listed for hearing on 11 November 2019 and the trial was therefore adjourned until 14 November 2019.
- The hearing of the reference concerning the appellant in the Mental Health Court took place before Flanagan J on 13 November 2019. The material before the Mental Health Court included two reports of Dr Kovacevic dated 20 and 29 October 2019, reports from psychiatrist Professor Gerard Byrne dated 3 March and 7 November 2019, reports from neuropsychologist Dr Lonie dated 4 April and 28 May 2018 and the affidavits of Mr McGinness and Mr De Craen sworn 12 November 2019. On 14 November 2019, the Court of Appeal dismissed the appellant’s appeal against Dalton J’s decision (Young v Director of Public Prosecutions (Qld)  QCA 247) and Flanagan J found that the appellant was fit for trial and for the trial to proceed according to law.
- On 14 November 2019 after Flanagan J’s decision had been given, the appellant was represented again by Ms Holliday for the purpose solely of an application to invoke the process under s 645 of the Code where the jury would be required to consider whether the appellant was not of sound mind. Perhaps the expectation, when an accused person’s fitness for trial had been determined urgently by the Mental Health Court during the trial, would be that the accused person would not seek to invoke s 645 of the Code. The effect of s 159(1) of the Mental Health Act 2016 was that the Mental Health Court’s decision on a reference in relation to the appellant in respect of the State charges did not prevent the appellant from raising the issue of his mental condition at the trial of those offences. Even though s 20B(3) of the Crimes Act 1914 deals with the consequences of a finding by a court before whom the person has appeared in proceedings for trial of Commonwealth offences on indictment that the person is unfit to be tried, there is no Commonwealth provision for the manner in which the issue of fitness to be tried is to be determined and it is therefore the State law (which was in this case s 645 of the Code) that provides for that process: Kesavarajah v The Queen (1994) 181 CLR 230, 241.
- For the purpose of the application to invoke s 645 of the Code, the trial judge was provided with the transcript of the proceeding in the Mental Health Court on 13 November 2019, the two reports of Dr Kovacevic, the two reports of Dr Lonie, and affidavits of Mr McGinness and Mr De Craen sworn 12 November 2019. The affidavit of Mr McGinness annexed the typed notes that the appellant’s brother had prepared for him for the purpose of the cross-examination of the witness Mr Baker that was conducted by the appellant on day 23 of the trial and the transcript of Mr Baker’s evidence that was marked up to show the correlation between the questions in the notes and the questions asked in cross-examination. The appellant relied on this affidavit to show that the appellant’s cross-examination was taken directly from the notes that had been prepared for him. Mr McGinness also annexed to his affidavit the first 15 pages of the transcript from day 23 of the trial during which the appellant had made applications which Mr McGinness had marked up to reflect the notes that had been provided to the appellant by his brother for the purpose of the applications, in order to highlight the parts of the transcript which replicated the notes. Mr De Craen was the general manager of a company that grows cucumbers for commercial supply and of which the appellant was the CEO. Mr De Craen described the appellant as not being involved in daily tasks, but responsible for collecting information about expanding the company’s business.
- The trial judge was not provided with Flanagan J’s decision, as the appellant relied on s 159(2) of the Mental Health Act 2016 that precluded the decision being admissible at the trial. It was common ground that on the appellant’s application it was for the trial judge to determine the threshold question of whether the material before the trial judge raised a real question that should go the jury of whether the appellant was not of sound mind.
- The question of soundness of mind raises the six minimum standards with which an accused person must comply before he or she can be tried without unfairness or injustice, as set out in R v Presser  VR 45, 48:
“He needs, I think, to be able to understand what it is that he is charged with. He needs to be able to plead to the charge and to exercise his right of challenge. He needs to understand generally the nature of the proceeding, namely, that it is an inquiry as to whether he did what he is charged with. He needs to be able to follow the course of the proceedings so as to understand what is going on in court in a general sense, though he need not, of course, understand the purpose of all the various court formalities. He needs to be able to understand, I think, the substantial effect of any evidence that may be given against him; and he needs to be able to make his defence or answer to the charge.”
- Dr Lonie had concluded in her first report that in relation to auditory verbal memory, the appellant “falls within the borderline range for a man of his age” and that he had “a severe impairment in his ability to recall or retrieve newly rehearsed verbal information”. Dr Lonie had also concluded that the appellant’s “ability to learn and retain new verbal material of an unstructured nature … is extremely poor”.
- For the purpose of his first report, Dr Kovacevic was provided with the report from psychiatrist Dr Reutens dated 25 March 2019, the report from Professor Byrne dated 3 March 2019, Dr Lonie’s report dated 4 April 2018, the appellant’s submissions to the court dated 14, 15 and 16 October 2019 and the transcript of the evidence of Dr De Looze given on 19 October 2017 in the appellant’s first trial. Dr Kovacevic assessed the appellant for two hours on 18 October 2019. His report of 20 October 2019 included the following. The appellant suffered his first episode of Transient Global Amnesia (TGA) in 2012 and then suffered a similar episode of TGA for about four hours at the end of a day in court for the first trial. Dr Kovacevic referred to the deficit in the appellant’s auditory verbal memory noted by Dr Lonie and her conclusion about his extremely poor ability to learn and retain new verbal material of an unstructured nature, but that otherwise his full scale IQ was in the high average range and there were not significant deficits in any of the other cognitive measures administered by Dr Lonie. Dr Kovacevic noted Professor Byrne’s conclusion that the appellant’s general intelligence was intact, but that he had “impaired new learning ability”.
- Dr Kovacevic also noted the conclusions reached by each of Dr Lonie, Professor Byrne and Dr Reutens on the appellant’s fitness for trial. Dr Lonie considered that the appellant’s attempts to represent himself at trial would be “grossly compromised”, because the appellant does not “retain the necessary verbal memory and the new learning ability to allow him to retain, integrate and later recall [evidentiary] material”. Professor Byrne considered the appellant “could be disadvantaged by continuing to conduct his own defence” and considered his auditory verbal memory deficits could be adequately addressed through the assistance of experienced legal advisors and the provision of daily transcripts. Dr Reutens diagnosed the appellant with mild neurocognitive disorder and adjustment disorder with anxiety and that it was “unlikely that he would be able to understand the substantial effect of the quantum of the evidence or the cumulative effect of the evidence over the course of the trial”. Dr Reutens also warned about the possibility of a recurrence of TGA and recommended against the appellant representing himself.
- The appellant had stated to Dr Kovacevic that no modifications had been made to his criminal trial. Dr Kovacevic considered that due to the appellant’s memory impairment where he is self-represented, the appellant “would have limited capacity to follow extended proceedings characterized by large amount of complex evidence where he would be expected to comprehend, retain, analyse and understand the effects of evidence and respond to the evidence in a timely and appropriate manner”. Dr Kovacevic’s opinion was that the appellant’s acquired cognitive deficit, subsequent to the two episodes of TGA, must be considered in the broader context of a serious cardiovascular and cerebrovascular illness.
- Dr Kovacevic concluded his first report as follows:
“In conclusion, I am of the opinion that Mr Young is presently medically unfit to self-represent in the current criminal trial. This is not to suggest that simply finding him a lawyer would immediately obviate all concerns. The complexity of this trial is such that even participating in his defense and providing ongoing instructions as the trial progresses requires generally preserved cognitive functioning. Mr Young requires a team of competent legal professionals who would conduct the trial with his assistance and reduce the cognitive burden that is currently placed solely on him.”
- For the purpose of his second report, Dr Kovacevic was provided further information about the manner in which the appellant’s trial had been conducted, including the transcript from day 23 of the appellant’s trial, and requested to respond to specific questions. On the basis that the information that the appellant had previously provided to Dr Kovacevic that no modifications had been made to his criminal trial was not accurate, as it was apparent from the further information some modifications had been made, Dr Kovacevic still remained of the opinion that the appellant was not fit for trial, if self-represented. In the course of the second report, Dr Kovacevic stated:
“This trial would be expected to be difficult for most self-represented defendants to navigate due to its length and complexity. Having cognitive deficits in auditory verbal memory makes the task particularly difficult for Mr Young. Mr Young is in my opinion not fit to represent himself due to his cognitive functioning, specifically his verbal auditory memory deficits. My finding of unfitness does not imply that Mr Young would be unfit if he self-represented in a different and simpler criminal trial. His unfitness is therefore contextual, and my assessment of his fitness relates specifically to his present trial circumstances.”
- Professor Byrne gave oral evidence before Flanagan J on 13 November 2019 and considered the appellant was fit for trial, even while self-represented. He considered that the transcript from day 23 which commenced with applications being made by the appellant showed “a fairly impressive exchange” with the trial judge. His opinion of the appellant’s cross-examination on day 23 was modified in his examination by Ms Holliday, as a result of being provided with the information that the questioning of the witness Mr Baker followed the script that had been provided to the appellant on the morning of the trial. Professor Byrne accepted that on the basis of the material in Mr McGinness’ affidavit, the day 23 transcript could no longer be relied upon as evidence of fitness for trial of the appellant, if he was self-represented. During the examination by Ms Holliday, Professor Byrne also accepted that he had expressed an earlier opinion that the appellant had “the capacity to meet all of the Presser criteria if assisted by daily transcripts and experienced legal counsel”.
- Dr Kovacevic also gave oral evidence before Flanagan J and did not resile from his opinion that the appellant, whilst self-represented, was unable to meet criteria 4, 5 and 6 of the Presser criteria. There was quite detailed examination of Dr Kovacevic on what the transcript from day 23 of the trial showed about the appellant’s capacity. Dr Kovacevic conceded that the transcript showed the appellant following up an unexpected answer with questions that were not scripted, but Dr Kovacevic pointed out that what the transcript showed was the appellant relying on his working or short term memory but “without necessarily relying on his memory retrieval from stored memories from earlier that day”. In examination by Ms Holliday, Dr Kovacevic confirmed that, it was in the context of this particular trial and the cognitive demand of that trial, including its length and complexity, he considered that the appellant had “no sufficient memory capacities” to self-represent effectively.
- On 15 November 2019, the trial judge declined to put the issue to the jury. In the reasons for that decision, the trial judge identified the correct threshold question as “whether a real question as to unfitness is raised”. The trial judge referred to what Keane JA said in relation to s 613(1) of the Code and s 20B(3) of the Crimes Act in R v Ogawa  2 Qd R 350 at :
“Once the Court becomes aware of ‘any reason’ whereby ‘it appears to be uncertain’ that a defendant ‘is capable of understanding the proceedings at the trial’ (for State offences), or ‘is [fit] to be tried’ (for Commonwealth offences), the trial judge should determine the threshold question as to whether there is a ‘a real question’ as to whether it appears to be uncertain that the defendant is either capable of understanding he proceedings at trial, or fit to be tried, as the case may be.”
- Section 613 of the Code provides for the procedure, if a question arises about the fitness for trial of an accused person when he or she is called upon to plead to the indictment. Section 645 of the Code provides for the procedure when the issue of an accused person’s fitness to be tried (or, as it is expressed in s 645, soundness of mind) arises during the trial. The same test applies under both provisions, when the question of fitness is referred to a jury empanelled under s 613 to determine or to the jury before which the trial is proceeding under s 645 to determine.
- The trial judge also referred to Kesavarajah at 245, including referring to the passage to the effect that sometimes the test has been stated in terms of “whether there is a reason to doubt the accused’s fitness to stand trial” and “the judge should leave the issue to be tried by the jury unless no reasonable jury, properly instructed, could find that the accused was not fit to be tried”.
- The trial judge then referred to the standard directions that are given to a jury called upon to determine the issue of fitness for trial pursuant to either s 613 or s 645 of the Code.
- The trial judge traversed the evidence in the reports of Dr Lonie and Dr Kovacevic and the evidence of Dr Kovacevic before the Mental Health Court on 13 November 2019 and noted that Dr Kovacevic was very careful about identifying the specific cognitive abnormality affecting the appellant. The trial judge noted that Dr Kovacevic took from Dr Lonie’s report that the appellant appeared to fall “between the bottom five to 10 per cent of population in terms of his auditory verbal memory functioning and … psychologists do standardise that in terms of age”. The trial judge noted that Dr Kovacevic then explained that means that one out of 10 or one out of 20 people would have similar deficits “but in the context of this trial and the cognitive demand of this trial and the length and complexity, and in the circumstances where Mr Young is to self-represent, I think he has no sufficient memory capacities to do that effectively”.
- The trial judge then recorded his observations about the appellant’s participation in the trial, noting that there were occasions during the trial where the appellant had made cogent arguments and that, although there were many witnesses and documents, they were all on notice, with the prosecution daily sending reminder lists of witnesses and documents to the appellant. In addition, the trial judge noted that it was the third time the appellant was engaged in the trial and, because the case was largely document-based, there was little or no scope for surprise evidence. The trial judge referred to the time given to the appellant to prepare for cross-examination and that he had been given, when he sought it, the opportunity to confer with witnesses before cross-examining them. The trial judge then returned to the question whether the deficit identified by Dr Kovacevic made the appellant unfit in this particular trial and framed it in terms of the preliminary question of whether it was open to the jury to so find. On the basis of the measures that had been adopted to adjust the trial to make allowance for the appellant’s needs, the trial judge concluded that “there’s no basis … upon which a jury properly instructed could be satisfied [the appellant] is not fit for trial”. That conclusion reflected the terms in which the court in Kesavarajah at 245 expressed when the trial judge should leave the question for the jury.
- The threshold question had to be determined by the trial judge on the basis that the appellant was self-represented.
- Although the trial judge purported to address the threshold issue of whether the material before him raised a real question as to whether it appeared to be uncertain that the appellant was fit to be tried, it is submitted now on behalf of the appellant that there was material in the reports of Dr Kovacevic and Dr Lonie upon which a reasonable jury, properly instructed, could find the appellant was not fit to be tried. It is submitted the trial judge by taking into account his view of the consequences of the modifications made for the purpose of assisting the appellant in the trial trespassed on the jury’s role. The effect of submissions made on behalf of the appellant is that the trial judge in deciding the threshold issue against the appellant addressed more than the threshold issue and decided the ultimate issue that was the question for the jury pursuant to s 645 of the Code.
- The appellant relies on the view expressed by the respondent’s senior counsel before the trial judge on 31 October 2019, when the reference to the Mental Health Court in respect of the State charges was brought to the trial judge’s attention. In discussing the possibility of the question of fitness in respect of the Commonwealth charges being raised in the trial, it was observed “if your Honour’s satisfied that there is a real question – and it would seem, perhaps, that’s not going to be a problem – we would then be saying that the procedure would be under 645 for the jury to consider the question of fitness”. Similarly during the course of argument on 6 November 2019, the respondent’s senior counsel referred to the report of Dr Kovacevic that accompanied the reference and submitted:
“… that alone provides a basis upon which your Honour would be satisfied that there is a real question arising accompanied with the repeated assertions in this trial by the defendant that he isn’t a person who’s capable because he is not fit, … the Crown has, having received the material, formed its own view, which has been articulated to your Honour, that the matter is raised as a real question now about fitness before this trial such that an inquiry through the jury should be conducted.”
- The making of those concessions before the matter was then argued formally before the trial judge on 14 November 2019 did not preclude the trial judge forming his own view in relation to the material put before the trial judge for answering the threshold question, does not preclude the respondent from now arguing that the trial judge answered the threshold question appropriately, and does not make the task of the appellant any easier in showing that the trial judge was in error in deciding the threshold question against the appellant.
- The respondent argues that, apart from the material that was put forward on behalf of the appellant for the purpose of the application made on 14 November 2019, the trial judge was entitled to have regard to all relevant matters which included the course of the trial proceedings and the earlier rulings made by the trial judge, the trial judge’s own observations and assessment of the appellant’s capabilities, the evidence that had been given in the Mental Health Court on the hearing of the appellant’s earlier reference, the reasons of Dalton J and the circumstances in which the application was made on 14 November 2019. The respondent points out that the threshold question was not to be answered on the basis of the opinions expressed by the appellant’s experts in isolation without taking into account an understanding of the adjustments that had been made to the trial procedure to make allowance for the appellant’s “minor” cognitive deficit and that he was self-represented. It is also submitted that Dr Kovacevic’s opinions did not take into account the nature or form of the evidence to be adduced in the prosecution case and the numerous and extensive accommodations and modifications that had been made, and would continue to be made by the trial judge. The respondent submits that Dr Kovacevic’s opinions were theoretical and did not have regard to the reality of the trial proceeding.
- The leading authority relied on by both parties is Kesavarajah. Kesavarajah concerned Commonwealth charges of conspiring to import heroin and the application of the Victorian provision equivalent to s 613 of the Code. Before the trial commenced, the trial judge read a report by one psychiatrist and heard evidence from another concerning Mr Kesavarajah’s mental condition. The first psychiatrist was of the opinion that Mr Kesavarajah showed evidence of an acute psychotic state and was not fit to plead, but the other psychiatrist considered that, despite his psychotic state, he remained capable of logical, rational thinking and it was apparent there had been an improvement in his behaviour in the recent days and he was fit to be tried. That psychiatrist did consider that Mr Kesavarajah’s psychosis could flare up under stress in such a way as to render him unfit to be tried. On the basis of this evidence, the judge ruled that there was not a serious question as to his fitness to be tried. The question of fitness was raised on two later occasions during the trial which lasted over four months and the trial judge did not reconsider his ruling. Mr Kesavarajah was convicted and his application for leave to appeal was unsuccessful. He then appealed to the High Court which held that the determination of whether Mr Kesavarajah was unfit to be tried was to be performed by the jury and not the judge on the basis that s 20B(3) of the Crimes Act picked up the relevant provisions of State law to determine whether the accused was unfit to be tried.
- The joint judgment of Mason CJ and Toohey and Gaudron JJ (with whom Deane and Dawson JJ agreed except on the aspect of whether the jury may take into account the future, as well as the present condition of the accused) noted, at 246, the conflict of opinion of the psychiatrists (that was not resolved by the psychiatrist who considered Mr Kesavarajah was not fit to be tried accepting that things may have changed between his examination and the later examination by the other psychiatrist). It was also relevant that the second psychiatrist considered Mr Kesavarajah’s psychosis could flare up under stress in such a way as to render him unfit to be tried. It was therefore held, at 246, that the issue should have been left to the jury. It was also noted, at 246, that the question of fitness had to be determined by reference to the factors in Presser and the length of the trial and, in that particular case, potential interruptions to the trial by reason of exacerbation of Mr Kesavarajah’s condition should be considered by the jury in the context of whether “the condition is such that difficulties can be accommodated by an adjournment if and when they arise”.
- It is therefore implicit from the joint judgment of Mason CJ and Toohey and Gaudron JJ in Kesavarajah that the jury is entitled to take into account their observations of the accused person during the trial that no doubt would be considered in the light of the submissions made on behalf of the prosecution and the accused person as to the relevance and significance of any such observations to the question before the jury. When the issue of the fitness of an accused person to be tried arises during the course of a trial, the jury that are otherwise hearing the charges are well placed to consider the question of fitness, because of their understanding of the nature of the issues in the trial and the evidence adduced at the trial and what is required of the accused person, subject to the directions given by the trial judge on the minimum requirements set out in Presser for an accused person to be fit for trial.
- The fact that Flanagan J had determined in relation to the State charges that the appellant was fit to be tried had no bearing on the outcome of the threshold question determined by the trial judge, as it was the threshold question before the trial judge and not the ultimate question. The respondent’s submission that the trial judge was entitled to take into account the circumstances in which the application was brought on 14 November 2019 after Flanagan J had ruled that the appellant was fit cannot be accepted.
- The importance of keeping separate the threshold question and the ultimate question was emphasised in R v Khallouf  VR 360. Mr Khallouf had been found to be of impaired mentality and unfit to be tried and was being held in custody until the Governor’s pleasure was known pursuant to the Victorian provision equivalent to s 613 of the Code. He was brought again before the court, terminated his legal representation and made it clear he would conduct his own defence. A doctor then gave evidence before the judge that Mr Khallouf was properly termed “an hysteric, a very immature personality”, but that he was fit to plead on the basis of the factors set out in Presser. The trial then proceeded before a jury. Mr Khallouf behaved in an abnormal or eccentric way during the trial and the judge’s charge was almost completed, when the jury had a question about Mr Khallouf’s psychiatric state in relation to his not being represented. The judge informed the jury that was irrelevant. The jury returned a guilty verdict. Mr Khallouf applied for leave to appeal against his conviction on the basis the judge erred in failing to empanel a jury to establish whether he was fit to be tried, before the trial commenced, or erred in failing to submit to the jury the question whether he was fit to be tried, when the jury raised the question about his psychiatric state. The Full Court of the Supreme Court of Victoria at 364 considered that, before the trial commenced, the trial judge had put the wrong question to the doctor, as the doctor should have been asked whether there was a real and substantial question to be considered in relation to Mr Khallouf’s fitness to be tried. The rationale for that was explained at 364 that it was for the judge to say whether there is a real and substantial question to be considered, but if there is such a question, then it must be considered by the jury. The court then further stated at 364:
“In the present case the question whether there was a matter to be considered and the question whether the applicant was fit to be tried seem rather to have been run together. Difficult though it may sometimes be, it is important that they be kept separate.”
- It was also implicit in Khallouf at 365 that the jury were entitled to take into account “the abnormal or eccentric behaviour of [Mr Khallouf] and upon his general demeanour during the trial”, if the question of his fitness to be tried had been referred to the jury.
- In Ogawa, it was noted (at ) that the numerous pre-trial proceedings that were held at least up until shortly before Ms Ogawa’s trial began demonstrated that her fitness to be tried had been thoroughly canvassed in the course of those various pre-trial applications brought by Ms Ogawa. In the course of dealing with those applications the trial judge had made findings to the effect that Ms Ogawa was deliberately seeking to avoid a trial by “feigning mental incapacity”. There had been nothing to suggest that there had been some change in Ms Ogawa’s capacity during the trial where she was representing herself. It was therefore held (at ) by Keane JA (with whom Chesterman JA and Jones J agreed) that “the effect of the learned trial judge’s findings, which were not the subject of appeal, was that when the matter came on for trial, he was entitled to proceed on the footing that the appellant was fit to be tried and that any suggestion to the contrary on her part was a feigned attempt to frustrate the course of justice” and (at ) “the findings that the learned trial judge made, based on his observations of the appellant and the expert medical evidence, were sufficient to justify his Honour in regarding the appellant’s position raised at the start of the trial as a position which was not raised in good faith and which was devoid of substance”.
- In Ogawa (at ), Keane JA had also treated the remarks of Kirby J in R v Tier (2001) 121 A Crim R 509, 521-2 as applicable to s 613 or s 645 of the Code. Those remarks included:
“It is only where there is patently no real and substantial question that the court may impute an absence of good faith, and decline to conduct an inquiry …”
- As in Kesavarajah, the trial judge was given conflicting opinions of psychiatrists on whether the deficit the appellant’s auditory verbal memory precluded his fitness for trial, where he was self-represented and where certain accommodations were made in advance notification of the order of witnesses and documents to be tendered and in frequent adjournments.
- Unlike Ogawa where the trial judge decided the threshold question on the basis of his experience in Ms Ogawa’s feigning incapacity and the benefit of the expert medical evidence given on the pre-trial applications concerning her incapacity, the material before the trial judge diagnosed a specific cognitive abnormality about which there was no dissent that it was not feigned and it had an effect on the appellant’s capacity to function in the trial. The question that was raised by the material before the trial judge where the appellant was self-represented and his specific cognitive abnormality had an effect on his capacity to function in the trial was whether certain accommodations or modifications made in the trial procedure made him fit to be tried.
- In dealing with the threshold question, the trial judge dealt with the effect of the appellant’s accepted cognitive disability in the circumstances pertaining the trial that were known to the trial judge. The trial judge’s reasons suggest that he discounted the effect of Dr Kovacevic’s opinion by taking into account the trial judge’s familiarity with the accommodations that had been made during the trial to assist the appellant and that would continue to be made during the trial. To the extent the trial judge took into account greater detail of the accommodations made for the appellant than had been put to Dr Kovacevic in the Mental Health Court and the trial judge’s familiarity with the nature of the evidence and that it had been disclosed to the appellant previously, the trial judge, in effect, anticipated how that further information may have affected Dr Kovacevic’s opinion. It is therefore apparent from the analysis of the trial judge’s reasons for rejecting the application that the trial judge engaged in the merits of whether the appellant was fit to be tried and decided the ultimate question, rather than consider whether the material that was before him for the purpose of determining the threshold issue raised a real issue for the jury to consider about the appellant’s fitness to be tried.
- There was enough in the material placed before the trial judge to raise a real issue about the fitness of the appellant who was self-represented to be tried. In this particular trial, the question of whether accommodations and modifications made to the trial process were sufficient to address the appellant’s cognitive deficit were for the jury to decide under s 645 in light of the evidence that may have been put before them on that aspect and their own observations of the matters relevant to the question they had to decide, as would no doubt be drawn to their attention by the respective submissions on behalf of the appellant and the prosecution. Once a real issue was raised, the threshold question was satisfied and s 645 of the Code required the jury to consider and determine whether the appellant was fit to be tried. Questions of convenience for the stage the trial had reached were irrelevant to whether the threshold question was satisfied: Kesavarajah at 248.
- If the trial of an accused person continues, when the accused person may not have been fit for trial, there is a miscarriage of justice: Eastman v The Queen (2000) 203 CLR 1 at . It was held in Kesavarajah at 248 that the object of the provision requiring the question of fitness to be determined by a jury was to ensure that a trial did not proceed in the face of an accused who was unfit to be tried and the proviso was not directed to such a situation.
- The appellant has succeeded on ground 5 which means that the appeal should be allowed and the convictions should be set aside on all counts. As the appellant has not succeeded on ground 1 in respect of any of the counts, a new trial should be ordered.
- The following orders should be made:
- Appeal against conviction is allowed.
- Convictions on all counts are set aside.
- A new trial is ordered.
- NORTH J: I agree with Mullins JA’s reasons and the orders proposed by her Honour.
- Published Case Name:
R v Young
- Shortened Case Name:
R v Young
 QCA 131
Fraser JA, Mullins JA, North J
15 Jun 2021
- Selected for Reporting: