Supreme Court of Tasmania|1994-09-14|Before: Zeeman J, Underwood J

Australian Securities Commission v Rolf John Schreuder; Rolf John Schreuder v Australian Securities Commission [1994] TASSC 127; (1994) 14 ACSR 614 (14 September 1994)

AUSTRALIAN SECURITIES COMMISSION v ROLF JOHN SCHREUDER; ROLF JOHN SCHREUDER v

Judgments and Orders - In general - Statement of reasons for decision - Extent of obligation - Justices - Long and complex litigation for alleged breaches of the Corporations Law. Pettitt v Dunkley (1971) 1 NSWLR 376; Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Sun Alliance Insurance Ltd v Mossoud [1989] VicRp 2; (1989) VR 8, applied.

Solicitors for applicant ASC: Australian Government Solicitor

In the case of LCA 109/1993 the orders of dismissal on counts 1,2,4,5,9,12,13 and 14 be set aside and the matters remitted for rehearing before another magistrate. With respect to the other orders of dismissal, motion to review dismissed.

In the case of LCA 114/1993 the motion to review the order of conviction on count 10 be dismissed and this matter remitted to the learned magistrate for sentence. With respect to all other orders of conviction, motion allowed, the orders set aside and the matters remitted for rehearing before another magistrate.

UNDERWOOD J As finally amended, the complaint against Rolf John Schreuder alleged that he had committed 29 offences contrary to the Companies (Tasmania) Code although three of the matters of complaint ("counts") were laid as alternative charges.

2. The hearing commenced in a court of petty sessions on 28 October 1992. It concluded on 25 June 1993 with written submissions to be lodged within 21 days thereafter. So far as I can ascertain from the record of proceedings in the court below, the hearing occupied 28 days or part days over that period of eight months. Nineteen witnesses were called and over 200 exhibits were tendered in evidence. The transcript of proceedings in the court below runs to almost 1500 pages and in addition, the learned magistrate had before him as part of the evidence, 844 pages of transcript of an examination of Mr Schreuder conducted in this Court before Zeeman J. The counts concerned Mr Schreuder's conduct as a director of a publicly listed company, Transequity Limited and as a director of three other companies. Together, they related to dealings in assets and cash to a total value in the order of $7,000,000. This litigation was long and complex. It called for close attention to detail. Proper resolution of the complaint must have been substantially hindered by the many interruptions to the hearing. It is difficult to understand why the court of petty sessions did not manage its business so that the hearing proceeded without substantial interruption.

3. The complaint was made by Simon Patrick Dwyer, as delegate of the Australian Securities Commission. It can conveniently be considered in three parts and to facilitate this some relevant background material is set out. This material is taken from the evidence and was put to me in summary form by senior counsel for the Australian Securities Commission, Mr Kable QC and conceded to be correct by Mr Melick, counsel for Mr Schreuder.

4. Transequity Limited was a publicly listed company. Its principal assets comprised shares in wholly owned subsidiaries. The subsidiaries each conducted a business. One such business produces the well known King Island Dairy products. Messrs Steele and O'Brien were directors of an unrelated company, Agricorp Ltd. They were anxious to secure the King Island Dairy business and the other businesses conducted by Transequity. Messrs Steele and O'Brien decided that the best way to do this was to make a takeover bid for Transequity. Accordingly, a subsidiary of Agricorp, Merino Holdings Ltd made a takeover offer pursuant to the Companies (Acquisition of Shares) (Tasmania) Code, s16 to acquire all the issued fully paid shares in Transequity. The bid was unsuccessful in that Merino only acquired 90 per cent of the desired shares and 5,400,000 options each of which entitled it to acquire one fully paid 25 cent share for 50 cents. At some stage, another wholly owned subsidiary of Agricorp, Elective Pty Ltd acquired 9,000,000 of the 200,000,000 25 cent ordinary shares (paid to 1 cent) issued by Transequity.

5. Messrs Steele and O'Brien did not abandon their objectives. They decided to acquire the desired businesses by purchasing the shares in the wholly owned subsidiaries for an effective price of $7,000,000 and to finance the purchase by selling all the shares, options and partly paid shares that Merino and Elective had acquired in Transequity. The net effect of the proposed transactions would be to pass ownership of the businesses to companies in the control of Messrs Steele and O'Brien and to convert almost all Transequity's assets from shares in subsidiary companies to cash in the order of $7,000,000.

6. At this stage, Mr Schreuder became involved in the proceedings. He was anxious to acquire the shares in a publicly listed company and Transequity appeared to him to be a suitable acquisition. On 4 April 1989 a written agreement was made between Agricorp, Merino and Elective of the one part and Mr Schreuder or his nominee of the other part. This was exhibit P98 in the proceedings in the court of petty sessions. This agreement put into effect the arrangement I have outlined. Mr Schreuder or his nominee agreed to buy the shares in Transequity. The agreement was subject to the condition precedent (inter alia) that no later than 9 June 1989, the members of Transequity pass certain resolutions to comply with the listing rules of the Australian Stock Exchange. The meeting was held on 9 June 1989 and the condition precedent fulfilled. At the same meeting, the members of the company noted that Mr Schreuder had nominated Associated Holdings Ltd as its nominee under the agreement dated 4 April 1989.

7. Settlement day was 16 June 1989. This took place at the offices of the Commonwealth Bank, 367 Collins Street, Melbourne. At the settlement meeting there were two officers of the National Australia Bank, Messrs Steele and O'Brien, the solicitor to their company Agricorp, and Mr Schreuder who that day became a director of Transequity Limited. What took place at the bank was the subject matter of counts 7, 8, 9, 12, its alternative 13, and 14. At settlement, the shares in the subsidiaries of Transequity passed to Merino, and the shares, partly paid shares and options in Transequity held by Merino and Elective, passed to Associated Holdings Ltd. By the transactions that produced that result the complainant alleged that either:

$6,973,351.68 and Transequity paid a cheque for

$6,857,589.20 back to Merino and Elective and consequently

bought its own shares; or

(b) Merino and Elective paid Transequity $6,973,351.68.

Transequity paid that sum to Transequity Finance which in

turn paid that sum to Presentation Property and Finance Ltd

which, at the direction of the defendant's nominee

Associated Holdings Ltd, paid $6,857,589.20 back to Merino

and Elective and by this means indirectly financed the

purchase of its own shares.

8. Count 8 was "withdrawn" in the proceedings in the court of petty sessions and the remainder dealing with this aspect of the case viz, counts 7, 9, 12, its alternative 13 and 14, were all dismissed. This might be described as the first part of the complaint.

9. The next matters concern exhibit P157. This is the 1989 annual report for Transequity Limited. The complaint concerns a statement in paragraph g(ii) of the Directors' Report and Notes 5, 9 and 18 to the accounts. This report was lodged with the Corporate Affairs office in Hobart on 16 November 1989 and the complaint alleges that in so doing, Mr Schreuder committed two breaches of the Companies (Tasmania) Code being those charged in counts 1 or alternatively, 2 and 3. The complaint also alleges that the same report was lodged with the Australian Stock Exchange (Hobart) Ltd on 21 November 1989 and in so doing, Mr Schreuder committed three further breaches of the Companies (Tasmania) Code being those charged by counts 4, 5 and 6. This might be described as the second part of the complaint. The learned magistrate ordered that all these counts be dismissed as well. Although a review of the order of dismissal of counts 3, 6 and 7 was sought in the notice of motion it was not pursued at the hearing.

10. Count 10 charged Mr Schreuder with being a director of a company whilst being an insolvent under administration. On this count, he was convicted. As will be seen, count 10 requires separate consideration in these reasons for judgment.

11. An order of dismissal was made on counts 11, 15, 16 and 17 and although these counts are included in the motion, at the hearing before me a review of these counts was abandoned.

12. The following events concern counts 18 to 29 inclusive in respect of each of which there was an order of conviction. This might be described as the third part of the complaint. The allegations are that on diverse dates between 19 June 1989 and 11 August 1989 Mr Schreuder made improper use of his position as an officer of a company to gain an advantage for himself or another or to cause detriment to the corporation of which he was an officer.

13. For ease of reference, I shall refer to the delegate of the Australian Securities Commission as the complainant, and Mr Schreuder as the defendant. By a notice of motion (LCA 109/1993) the complainant seeks a review of the orders of dismissal but, as mentioned, that is not pursued with respect to counts 3, 6, 7, 11, 15, 16 and 17. I note that this motion also seeks a review of the order made on count 10 but I infer that this is an error for the order on that count was one of conviction and in any event, there are no grounds in the motion to support a review of the order on this count.

14. By notice of motion (LCA 114/1993) the defendant seeks a review of the orders of conviction on counts 10 and 18 to 29 inclusive. By consent it was agreed that both motions be heard together.

15. Leaving out of further consideration those orders in respect of which a review is no longer sought, the following sets out in tabular form the relevant counts.

Count No Date/Offence Desc. of Offence Section Order

1 16/11/89 Making a false or misleading statement in

a document lodged with the Commission.563(2) D

2 16/11/89 Failing to ensure that there is not a

false or misleading statement in a document lodged

with the Commission.

(This is an alternative to count 1) 563(3)(a) D

4 21/11/89 Furnishing false or misleading information

to the Australian Stock Exchange

(Hobart). 564(1)(c)(d) D

5 21/11/89 Failing to ensure that false or misleading

information was not furnished to the Australian

Stock Exchange (Hobart).

(This is an alternative to count 4)

564(2)(c)(d)(f)

D

9 16/6/89 Knowingly concerned in a company directly

financing dealings in its own shares. 129(5) D

10 16/6/89 - 5/2/90 Being a director whilst insolvent.

227(1) C

12 16/6/89 Improper use of position as an officer of a

corporation 229(4) D

13 16/6/89 Improper use of position as an officer of a

corporation.

(This is an alternative to count 12) 229(4) D

14 16/6/89 An officer of a corporation failing to act

honestly in the exercise of his power. 229(1)(b) D

18 7/7/89 Improper use of position as an officer of

Aquascent Pty Ltd. 229(4) C

19 7/7/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

20 11/7/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

21 31/7/89 Improper use of position as an officer of

Seventh Wellington Pty Ltd. 229(4) C

22 4/8/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

23 11/8/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

24 19/6/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

25 21/6/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

26 22/6/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

27 29/6/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

28 5/7/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

29 4/8/89 Improper use of position as an officer of

Transequity Limited. 229(4) C

16. The complainant's motion relies upon a different ground for each count and one ground common to all viz:

"The learned magistrate made no sufficient findings of fact

and/or provided no sufficient statement of his reasons for

the dismissal of the count."

17. The defendant's motion also relies upon a different ground for each count and, by amendment on the hearing before me, one ground common to all in terms identical to the ground relied upon by the complainant and set out above. I say identical because the defendant's ground in the case of each count, refers to an order of dismissal as does the complainant's ground. Obviously this is an error, perhaps due to plagiarism. I shall treat the defendant's ground as referring to an order of conviction in each case.

18. Thus, both parties come to this Court and say with respect to all the orders that were made against them that there was an error of law in that the learned magistrate failed to give adequate reasons and/or make adequate findings of fact for the orders he made. This unusual circumstance became even more unusual by neither counsel making submissions in opposition to those put by the other side on this ground and by both counsel contending that the ground was so clearly made out in all cases (except count 10) that I should entertain this ground as "a preliminary point". It was submitted that by doing this, considerable time and expense may well be avoided. I agreed to the course jointly proposed to me upon the clear understanding that I would hear submissions on the ground of inadequate reasons and give my "ruling" on that ground. It would then be a matter for each party to decide whether he wished to argue any further grounds in support of his motion, in particular in the case of the defendant, with respect to count 10. If both parties decided not to pursue any other grounds I would forthwith proceed to determine the motions. If other grounds were to be argued I would hear counsel further before making any final determination. Until the motions are finally determined any "ruling" on the inadequate reasons ground has no effect in law. See International Catamarans Tasmania Pty Ltd v Stewart Zeeman J B19/1994 and cases cited therein.

19. Before examining the reasons for judgment of the learned magistrate it is appropriate to set out the relevant legal principles. It is now well established that an incident of judicial duty is to give adequate reasons for judgment and that a failure to do so constitutes an error of law. This proposition is reflected in the well known and now oft quoted passage from Pettitt v Dunkley (1971) 1 NSWLR 376 at 382:

"In my respectful opinion the authorities to which I have

referred and the other decisions which are therein mentioned

establish that where in a trial without a jury there are

real and relevant issues of fact which are necessarily posed

for judicial decision, or where there are substantial

principles of law relevant to the determination of the case

dependent for their application upon findings of fact in

contention between the parties, and the mere recording of a

verdict for one side or the other leaves an appellate

tribunal in doubt as to how those various factual issues or

principles have been resolved, then, in the absence of some

strong compelling reason, the case is such that the judge's

findings of fact and his reasons are essential for the

purpose of enabling a proper understanding of the basis upon

which the verdict entered has been reached, and the judge

has a duty, as part of the exercise of his judicial office,

to state the findings and the reasons for his decision

adequately for that purpose. If he decides in such a case

not to do so, he has made an error in that he has not

properly fulfilled the function which the law calls upon him

as a judicial person to exercise and such a decision on his

part constitutes an error of law."

20. This duty was described by Kirby P in Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 259 in the following terms:

"This decision does not require of trial judges a tedious

examination of detailed evidence or a minute explanation of

every step in the reasoning process that leads to the

judges' conclusion. But the judicial obligation to give

reasons, and not to frustrate the legislative facility of

appeal on questions of law, at least obliges a judge to

state generally and briefly the grounds which have led him

or her to the conclusions reached concerning disputed

factual questions and to list the findings on the principal

contested issues. Only if this is done can this court

discharge its functions, if an appeal is brought to it."

21. There are many other cases to the same effect see eg Palmer and Ors v Clarke and Ors (1989) 19 NSWLR 158; Sun Alliance Insurance Ltd v Massoud [1989] VicRp 2; (1989) VR 8 and Xiong v McCarthy FC A45/1994. In the present case, the judicial duty required the learned magistrate, with respect to each count, to at least:

1 Make findings with respect to the essential facts relied

upon by the complainant and the defendant relevant to the

elements of the charge.

2 Where the evidence with respect to those facts was in

dispute or unclear, state the basis for making such

findings.

3 Where appropriate, state what inferences he drew from the

facts found and where necessary, the basis for drawing such

inferences.

4 To expose the reasoning process which resulted in the

orders made to the scrutiny of the parties and any appellate

court.

22. The need to make detailed findings of fact and to give reasons was implicitly acknowledged by the learned magistrate in the third paragraph of his reasons for judgment when he said, "factual circumstances and inferences that are to be drawn therefrom in this case are extremely complicated." In the first two pages he made some general observations, one of which was:

"No expert or explanatory evidence was called as to the

practices and procedures undertaken in corporate matters at

that time, nor was any such material presented by way of

explanation of the circumstances alleged to have occurred in

this case."

23. The learned magistrate refers to this "omission" later in his reasons for judgment. Leaving to one side the question of the admissibility of such evidence, the observation and the circumstances in which it was made and repeated might be thought by some to create an impression that the learned magistrate did not fully understand the issues or the evidence in the case that was put to him.

24. Following his general observations the learned magistrate set out each of the counts in full and after each, or in some instances after a group of counts, he set out his reasons for the orders he made. First, he set out counts 1, 2 and 3 together and the whole of the statements that were alleged to be false or misleading. It is unnecessary for me to set them out again in this judgment. It is sufficient if I summarise the effect of the prosecution's allegations that the statements were false or misleading in that:

- the Directors' Report, paragraph g(ii) suggests that

Transequity Limited had acquired funds by Associated

Holdings Ltd paying 50 cents on 5,400,000 options acquired

from Merino and by paying uncalled capital on 9,000,000 one

cent partly paid shares acquired from Elective when this was

not the case.

- Note 5 creates an impression that Transequity Limited was

entitled to receive a "deposit receivable" of $6,858,342

when that was not the case.

- Note 9 represented that Transequity Limited had an asset

to the value of $120,762 when that was not the case.

- Note 18 represented that the options referred to therein

had been exercised and that the unpaid capital on the shares

referred to therein had been paid when neither was the case.

25. The essential elements in the offence charged by count 1 were that:

1 on or about 16 November 1989;

2 the defendant;

3 in the Directors' Report and accounts contained in the

1989 annual report for Transequity Limited, lodged with the

Corporate Affairs Commission (Hobart);

4 made one or more of the statements particularised;

5 that one or more of those statements was false or

misleading in a material particular; and

6 that at the time the defendant made it or them, he knew

that they were false or misleading in a material particular.

26. The learned magistrate commenced his reasons for judgment on count 1 with this proposition:

"In my view, count 1 involves a requirement for the

prosecution to prove beyond a reasonable doubt that the

defendant had the necessary mens rea. (See Cameron v Holt

[1980] HCA 5; 28 ALR 490)."

27. The statute expressly provides that actual knowledge is an ingredient in the offence charged by count 1 and consequently, the reference to Cameron v Holt appears to be misconceived. Next, the learned magistrate said:

"The prosecution also has to prove beyond a reasonable doubt

that the defendant made or authorised the making of the

statements and that the defendant knew 'of the materiality

of his falsehood'. (See the Queen v Davies (1973) 7 SASR

375)."

28. With respect to that statement, Mr Kable submitted, as an incident to his argument on the inadequate reasons ground, that the learned magistrate made an error of law. Mr Kable submitted that it was only necessary to prove that, viewed objectively, the falsity or misleading nature of the statement was in a material particular. I have some misgivings about the correctness of this submission. Mr Melick did not argue this point and its determination is not necessary for the ground presently under review. R v Wright [1980] VicRp 56; (1980) VR 593 concerned an information with respect to an offence under the Securities Industry Act 1975 (Vic), s110. Young CJ said at 595 that (inter alia) the Crown was obliged to prove that, "when he disseminated the information the appellant knew or ought reasonably to have known that the information was misleading in a material particular." At 602 Kaye J took the same view holding that an ingredient in the offence was knowledge that the relevant statement was "false or misleading in a material particular." In R v M (1980) 2 NSWLR 195, the court took the same view at 205 when it said:

"There was but one offence alleged, namely, the concurrence

in publishing of a statement knowing it to be false in a

material particular ..."

29. In Roget v Flavel and Sanders (1989) 51 SASR 313 the Full Court of the Supreme Court of South Australia considered the mental element in an offence created by the Companies (SA) Code, s564(1). King CJ with whose judgment the other members of the court agreed said at 314:

"The basic canon of construction of a statute is that it

must be construed according to the ordinary and natural

meaning of the words used. If the meaning of the words used

is plain, that meaning must be given effect to. I see no

difficulty about the construction of this section. The

mental element of the offence which it creates is plainly

stated as the knowledge of the officer that the information

is false or misleading in a material particular or has

omitted from it a matter or thing the omission of which

renders the information misleading in a material respect."

30. See also Stanton v Abernathy and Anor (1990) 19 NSWLR 656. The mental element prescribed by the Companies (Tasmania) Code, s563(2) is knowledge that the statement "is false or misleading in a material particular." It does not prescribe that there must be knowledge that the statement is false or misleading and that such falsity or misleading nature must be in a material particular. I see no difficulty with this construction. If, viewed objectively, the falsity is in a material particular, proof that the defendant knew of the falsity will, in the absence of other evidence, easily lead to the inference that he knew such falsity was in a material particular. However, as I say the matter was not fully argued and does not presently fall for determination.

31. The learned magistrate continued his reasons for judgment by saying, "the prosecution also has to prove the documents were lodged as alleged (I do not consider that the defendant has challenged this proposition)." The learned magistrate then observed that counts 2 and 3 seemed to be offences of strict liability and proceeded to set out in full directors' note paragraph g(ii) and notes 5, 9 and 18 to the accounts. Having done this he posed the question, "was the defendant the author of these statements?" Over the next page, in a discursive manner, the learned magistrate referred to the defendant receiving advice from auditors, solicitors and others. No detailed facts were found but the learned magistrate concluded by saying:

"There is no doubt that the auditors were involved to a

considerable extent in the preparation of this report.

However, I am satisfied beyond a reasonable doubt that the

defendant supplied the information complained of and, in my

view, therefore, he becomes the 'maker' of the statement."

32. Facts upon which that conclusion might have been based were not found and no reasoning process was disclosed by which that conclusion was reached. The learned magistrate next posed the question:

"Have (sic) the prosecution proved beyond a reasonable doubt

that he knew the statements were false and that they were to

his knowledge 'misleading in a material particular'?"

33. Set out below is the balance of the learned magistrate's reasons for an order of dismissal on count 1:

"It seems to me beyond argument that the defendant had taken

legal and audit advice in the preparation of this document.

It is obviously necessary to consider what steps were

required to secure compliance with the Code.

'The test is an objective test. It is necessary to

ascertain what steps reasonably ought to have been taken by

the respondent to secure compliance. Again, the test is an

objective test but by reference to the particular

circumstances of the case ... what is actually reasonably

required of a particular director depends upon the facts of

the case.' Per Zeeman J in Australian Securities Commission

v Fairlie 49/1993 at p 13."

34. I interpose to observe that all of the foregoing appears to have nothing to do with the issues that the learned magistrate had to determine on count 1:

"I am particularly influenced by the fact that the defendant

was in regular contact with his advisers over the

preparation of these documents. Bearing in mind all the

evidence and the comments as to the vagueness of the

evidence of the prosecution witnesses in relation to this

count, I am not satisfied beyond a reasonable doubt that the

prosecution has shown that the defendant had the requisite

guilty knowledge for this count to be proved.

Further, although it is not necessary for me to consider it,

I am not satisfied beyond a reasonable doubt that the

prosecution has proved that the defendant knew of the

materiality of any falsehood (if, indeed, there was any).

Count 1 is dismissed."

35. None of the evidence that went to the issue of whether one or more of the statements was false or misleading is referred to and no facts relevant to a determination of that issue are found. The learned magistrate merely refers to "all the evidence" which as mentioned, exceeds 2,000 pages of transcript and many exhibits. Indeed, no finding at all is made with respect to the issue of the falsity or the misleading nature of one or more of the statements. Regular contact with the defendant's advisers appears to be irrelevant to the primary issues that had to be determined. The learned magistrate said he was particularly influenced by such regular contact, but does not say how or in respect to what conclusion he was so influenced. The paucity of reasons and the absence of facts found, deprive an appellate court from examining the correctness of the order of dismissal on this count.

36. The essential elements in the offence charged by count 2 are the same as those I have numbered 1, 2, 3 and 5 for count 1 and that:

4 the defendant made or authorised one or more of the

statements particularised; and

5 failed to take reasonable steps to ensure that one or more

of the said statements was or were not false or misleading.

37. This count was laid as an alternative to count 1.

38. The following are the learned magistrate's reasons for dismissing count 2:

"Counts 2 and 3 can be dealt with together. These counts

seem to me to involve offences of strict liability.

Count 2 alleges a failure in relation to the same statements

as in count 1. Again it seems to me, and I so find, that

the defendant took professional advice in the preparation of

this report."

39. I interpolate to observe again that this seems to be irrelevant to the issues he had to determine:

"Despite what appears to be a minimisation of his role by

him in his examination, I am not satisfied on the evidence,

beyond a reasonable doubt, that his provision of the

information forming the basis of the statements was not done

in the belief that he was acting lawfully and in accordance

with his obligations.

In my view, that belief would be honest and reasonable,

bearing in mind the involvement of the professional

advisers.

The defendant's evidence in his examination raises that

proposition and thereafter the prosecution carries the

burden of proof to negative it."

40. I confess that I find the foregoing difficult to understand. However, what is clear is that no primary facts are found, no inferences are drawn and no reasoning process for the order made is disclosed. It might be inferred from what the learned magistrate said that in his evidence on the examination before Zeeman J, the defendant claimed an honestly and reasonably held mistaken belief in certain facts which if true would have rendered his conduct innocent. The learned magistrate did not state what he found those facts to be, nor did he find whether the defendant's belief in them was honestly but mistakenly held on reasonable grounds. In addition, there is no reasoning process which this Court can examine to demonstrate how the learned magistrate reached the conclusion stated.

41. Count 4 and its alterative, count 5 are based on the same statements that ground count 1 and its alternative count 2. Counts 1 and 2 allege that the false or misleading statements were made to the Commission and counts 4 and 5 allege that they were made to the Australian Stock Exchange (Hobart). The following are the learned magistrate's reasons for an order of dismissal on count 4:

"This count involves proof beyond a reasonable doubt of

necessary (sic) mens rea.

I am satisfied beyond a reasonable doubt that the defendant

was a director of Transequity as alleged. I am satisfied

beyond a reasonable doubt that he furnished the information

as alleged.

The comments I made in relation to the earlier charges of

the defendant having taken professional advice are relevant

here.

I find that Hogan checked the information he received from

the defendant with McDougall. He was satisfied that the

accounts were true and correct.

I am not able to find beyond a reasonable doubt that the

defendant had the requisite guilty knowledge. The count is

dismissed."

42. Mr Hogan was a partner in a firm of chartered accountants engaged by the defendant as Transequity's auditors in November 1989 and Mrs McDougall was a solicitor formerly employed by Phillips, Fox and Masell. In his reasons, the learned magistrate does not define the "necessary mens rea." The section provides that knowledge that one or more of the particularised statements was or were false or misleading in a material particular is an essential element in the offence charged. No finding is made, nor inference drawn with respect to the issue of the falsity or the misleading nature of any of the statements. The finding that the learned magistrate made with respect to Mr Hogan appears to have no relevance to the elements of the offence charged. There has been an almost total failure to find relevant facts and to give adequate reasons for the order of dismissal. The learned magistrate dealt with counts 5 and 6 together. As in the case of count 4, relevant reasons are virtually non-existent. The learned magistrate said:

"These offences are of strict liability.

I repeat what I said in relation to the taking of

professional advice in earlier counts.

Lengthy submissions were made by the prosecutor as to the

accuracy or inaccuracy of these statements and inferences

which could be drawn.

The prosecution must also prove the defendant knew

'the materiality' of any falsehood.

Considering all the evidence, I cannot at the end of the day

be satisfied beyond a reasonable doubt that the defendant

did not hold an honest and reasonable belief that the

statements were accurate and true.

Further, I cannot be satisfied beyond a reasonable doubt

that the defendant's knowledge of the materiality of the

statements has been proved. These counts are dismissed."

43. There is a clear obligation upon a judicial officer to deal with relevant submissions made by parties to litigation. If this is not done, the parties are denied their proper rights of appeal and justice does not appear to have been done. The falsity or misleading nature of the particularised statements was a critical aspect of counts 1-6 inclusive. Not only did the learned magistrate fail to make any findings of fact with respect to this matter, but he failed to express any view at all on the submissions made to him by the prosecutor with respect to this essential issue. Again the learned magistrate referred to the defendant's honest and reasonable mistake of fact, but he did not state what facts he found relevant to that issue. Further there is no reasoning process to show why the failure to exclude an honest and reasonable but mistaken belief was exculpatory.

44. Counts 9, 12 and its alternative 13 and 14 all relate to Associated Holdings' purchase of the Transequity shares. Count 9 alleges that the defendant, being an officer of Transequity Limited, was knowingly concerned in the company indirectly giving financial assistance to Associated Holdings for its acquisition of the shares and units held by Agricorp and its subsidiaries.

45. Without actually making any findings of fact, and observing, "it is necessary to mention some background here and I refer to the prosecutor's opening address in that regard," the learned magistrate referred to some of the events that led up to the meeting on 16 June 1989. With respect to the settlement the learned magistrate said:

"Mr Ludeman (from the National Bank) said the meeting went

as follows:

'Well, Merino Holdings was selling its assets and holding in

a company that I understand as Transequity to Associated

Holding and we (the National Australia Bank) requested a

bank cheque from the Commonwealth Bank of Australia for the

sale of those assets ... we then stamped the reverse of the

bank cheque and requested a bank warrant straight away from

the CBA.'

They received the bank warrant, and Mr O'Brien then

instructed the two bank officers to hand over the two bank

cheques they had.

The two bank cheques held by the National Australia Bank

were for $6,623,351.68 and $350,000.00 respectively, both

payable to Transequity.

The evidence shows that the defendant wrote a Transequity

cheque for $6,857,589.20 to purchase the bank cheque payable

to Merino from the Commonwealth Bank.

The prosecution asks why the defendant would use the

Commonwealth Bank for Transequity's account when the company

usually banked with the National Australia Bank and why

would the defendant say he was a director when the evidence

indicates that he was not."

46. I interpolate here to note that although the learned magistrate raised two apparently critical factual issues, he dealt with neither of them.

"There was also the evidence of a number of documents and

transactions which occurred at about the time and which were

listed by the prosecution as follows:

(The learned magistrate then detailed 8 documents which the

prosecution alleged laid a paper trail of financial

transactions from which the only reasonable inference was

that the company was indirectly giving financial assistance

for the purpose of acquiring its own shares)."

47. Again, I interpolate to note that although the learned magistrate articulated the prosecution's contention, he made no findings of facts or inferences relevant to the issue. The learned magistrate went on:

"The defendant contended he obtained legal advice about the

effect of the transaction of 16th June 1989. He said:

'The reason that these things were undertaken was on advice,

I mean, they just weren't undertaken because it was thought

appropriate to do so.'

He said he received advice from Phillips Fox, and he went on

to say that that firm prepared the settlement documents.

Mr Melick submits that the object of the exercise was to

divorce Transequity as a public listed shell from its

subsidiary assets. Transequity and its subsidiary started

out in this transaction as being a single entity and ended

up being torn asunder. What was Transequity at the start of

the transaction was not Transequity at the end of the

transaction as the share holding had changed, presumably the

directors had or were to change, the assets were completely

different; in fact only the name remained the same."

48. I confess, as stated, I find it difficult to understand Mr Melick's submission. Whether the learned magistrate understood it and its relevance to the issues for determination is not known for he did not deal with it at all. He continued:

"It appears, as Mr Melick submits, that at the time of these

transactions it was accepted that persons who were directors

in one company could become involved in dealings with other

companies of which they were also directors. These types of

'round robin' transactions were not uncommon, on the

evidence."

49. The learned magistrate gave no indication of the weight or relevance he accorded that submission either and concluded:

"There appears to me to be some real doubt in the

proposition that Transequity ended up in acquiring its own

shares. On the evidence, the defendant had received advice

on section 129 and on the settlement generally and, indeed,

specifically.

In my view, these counts call for the prosecution to prove

beyond a reasonable doubt that the defendant was 'an

intentional participant, a necessary intent being based upon

knowledge of the essential elements of the contravention'

(see Yorke v Lucas [1985] HCA 65; (1985) 158 CLR 661 at 670).

On the evidence presented, I am not satisfied beyond a

reasonable doubt that that element has been proved. I

dismiss counts 7 and 9."

50. As in the case of each of the previous counts, the learned magistrate totally failed to find the facts relevant to the essential elements in the offence charged and failed to expose any satisfactory reasoning process to explain why he reached the conclusion to which he came.

51. Count 12 charged the defendant with improper use of his position as an officer of a corporation to gain an advantage for Associated Holdings. The whole of the learned magistrate's reasons for judgment with respect to this count are:

"As the prosecution said, this count is inextricably linked

with what occurred on 16th June 1989. The prosecution also

asserted that it must prove that the defendant intended to

give an advantage to A/H and believed that he was giving

such an advantage.

Mr Arendt went on to say that intent and belief 'can be

inferred' from his actions and, in particular, his direct

involvement in the transaction of acquiring the Transequity

shares.

Mr Arendt went on at great length in relation to this count

and others to examine the relevant transactions and

documents, and at the end of the day he asked the court to

accept his construction and draw the necessary inferences.

I repeat that no expert evidence was adduced in this regard

in relation to this count either.

This is a charge which involves proof by the prosecution of

the defendant's mens rea. After considering the evidence

and the submissions made, I am not satisfied beyond a

reasonable doubt that the requisite mens rea has been

proved. I repeat what I have said earlier about the

defendant having taken professional advice. The count is

dismissed."

52. No relevant fact is found. No relevant inference is drawn. No hint is expressed of the learned magistrate's views (if any) on the submissions that Mr Arendt presented "at great length". There is no statement of the relevant law, particularly with respect to the mental element in the offence charged. No reasoning process for ordering the dismissal of the count is set out. Whether there was to be a conviction on count 12 or 13 depended (inter alia) upon findings of fact with respect to what occurred on 16 June 1989 and what inferences could be drawn from those facts and the documentary evidence tendered. This is all the learned magistrate had to say:

"This count involves proof beyond a reasonable doubt of the

necessary mens rea. I repeat what I said about the

defendant having taken professional advice. I repeat what I

said about the construction urged by the prosecution. That

construction is not evidence.

Having considered the evidence, I am not satisfied beyond a

reasonable doubt that the prosecution has proved the

requisite mens rea in relation to this count, and I dismiss

it."

53. Ancillary to his argument on the inadequate reasons ground, Mr Kable QC made submissions with respect to the mental element in the offence created by the Companies (Tasmania) Code, s229(4). Although not strictly in issue on this ground, it is appropriate that I refer to them.

54. In Chew v R [1992] HCA 18; (1991-1992) 173 CLR 626, it was held that advantage for the defendant or another, or detriment to the corporation of which the defendant was an employee or officer, was not an element in the offence created by s229(4). The majority of the members of the court held that the words "to gain" were purposive, in the sense that an element in the offence was that the relevant conduct must have been engaged in, in order to achieve either of the two prescribed results but it mattered not whether either in fact resulted. At 633-634 Mason CJ, Brennan, Gaudron and McHugh JJ said:

"In the course of argument, it was suggested that it was

necessary to establish that an accused person perceived that

the alleged advantage or detriment was an advantage or

detriment. We do not read the provision in that way. Once

one concludes that there is a purposive element in the

offence, it is necessary to establish not merely that the

accused intended that a result should ensue, but also that

the accused believed that the intended result would be an

advantage for himself or herself or for some other person or

a detriment to the corporation."

55. Immediately following the passage cited above the joint judgment went on, "(t)he accused's state of mind is relevant not only to the requirement of purpose but also to the element of improper use of his or her position." A little lower down on the same page the following passage appears in the joint judgment:

"The judge told the jury that what was improper was to be

determined by reference to the powers and duties of a person

in the accused's position, namely, the chairman of directors

of the company. The judge also told the jury that the

conduct alleged to have been an improper use of that

position need not be illegal and that conduct could amount

to improper use of that position even if the person

concerned believed it to be in the interests of the company.

No objection is or was made to what his Honour said on that

score."

56. No issue was taken over that direction. It is a direction that what is improper is to be determined objectively and therefore, might be thought to sit a little uneasily with the earlier statement that an accused's state of mind is relevant to the element of improper use of his or her position. The sentence in the judgment that state of mind is relevant to improper purpose is immediately followed by these words:

"If, for example, an accused person reasonably but

mistakenly believed that a particular transaction which he

or she authorised was genuinely for the benefit of the

corporation, that belief may, in an appropriate case, be

material in determining whether the accused person can be

held criminally responsible for using his or her position in

a manner which would objectively be seen to be improper."

57. At first blush it might seem that this is simply a reference to the so called defence of honest and reasonable but mistaken belief of fact but I respectfully agree with the joint judgment of the Court of Criminal Appeal (NSW) in R v Yuill unreported 19 July 1994, in which the court rejected that submission made to the court by the Crown. In Yuill, the court carefully examined the judgment in Chew and came to the conclusion that the majority in that case did not intend to mean that the Crown must prove in every case, a particular state of mind by the accused concerning the impropriety of his or her use of his or her position. After analysis of some earlier authority, the Court of Criminal Appeal concluded that the accused's state of mind only became relevant to the issue of whether the conduct was an improper use of his or her position in those cases where the conduct was not improper considered from a purely objective standard. Their Honours expressed their position in the following terms at 30 of the unreported judgment:

"Our conclusion based upon the authorities to which we have

referred is that the state of mind of the accused becomes

relevant to the issue as to whether the use made of his

position as a director is improper only when the Crown has

not established that that use was improper considered from a

purely objective standard. The jury should be directed in

relation to the accused's state of mind that:

(1) They should first consider the issue from a purely

objective standard, as to whether the use made by the

accused of his position is improperly inconsistent with the

particular duties and responsibilities of that position.

(2) If they are satisfied beyond reasonable doubt that the

use made by the accused of his position was improper from

that purely objective standard, the reasonable possibility

that the accused believed that what he was doing was in the

best interests of the company is irrelevant to that issue,

and it will not mean that Crown (sic) has failed to prove

that such use of his position was improper.

(3) It is only if they are not satisfied beyond reasonable

doubt that the use made by the accused of his position was

improper from a purely objective standard that they may

consider whether the accused's state of mind made that use

improper.

(4) The relevant state of mind in that situation may be of

varying kinds, depending upon the circumstances of the

particular case, but it may include a consciousness by the

accused that what he is doing constitutes an improper use of

his position."

58. The Supreme Court of South Australia also considered this question recently in Hopwood v R unreported judgment 21 April 1994 (available on SCALE). In that case Mohr and Leggoe JJ agreed with the reasons given by Bollen J. At 48 of the unreported reasons, Bollen J referred to Chew's case and in particular the passage I have set out concerning the accused's state of mind on the issue of improper use of the position of director. At 49, his Honour said, "Once the conduct which is objectively improper has been proved beyond reasonable doubt you turn to consider the intention of the actor to see if civil impropriety is translated into criminal impropriety." I must say with great respect to his Honour I have some difficulty in reaching that conclusion from the judgment of the majority in Chew's case. However, I am informed by counsel that special leave to appeal to the High Court has been sought in Hopwood so perhaps the difference between the two cases will be resolved.

59. The order of dismissal of count 14 is the last order in respect of which the complainant seeks a review. This count also relates to the events that occurred at settlement on 16 June 1989. It charges the complainant with failing to act honestly in the exercise of his power as an officer of Transequity Limited contrary to s229(1)(b). The particulars allege fraud. The learned magistrate does not find any facts with respect to this count. All he said was:

"This count involves proof beyond a reasonable doubt of the

necessary mens rea.

The prosecution seems to have relied on what it was said was

the experience of the defendant in take over-matters, his

knowledge that there were minority shareholders in

Transequity in the circumstances surrounding the settlement

of the 16th June 1989 (sic). Mr Arendt went on:

'He certainly intended to take that money and to use it for

that purpose and thereby intended to defraud the minority

shareholders ... and (if) your Worship doesn't find that,

certainly there's such a conscious disregard there for the

interests of those shareholders that it would nearly amount

to being an intention.'

The prosecution needs to prove the necessary mens rea. The

defendant said in his examination:

'I believed that I have complied with the Companies Code and

I have acted in accordance with the memorandum and articles

of association of the company and complied with the

regulations and requirements of the listing rules of the

Australian Stock Exchange. To ensure the undertakings by

the companies associated with me, wherever appropriate,

extensive advice was sought and obtained from Phillips Fox,

solicitors.'

Again, on the evidence presented, I find I cannot be

satisfied beyond a reasonable doubt that the defendant's

mens rea has been proved, and I dismiss this count."

60. In short, the learned magistrate appears to have dismissed the count without finding a single fact, without drawing a single inference, without expressing any view on a submission made to him on behalf of the complainant and without specifying what state of mind he was not satisfied the defendant had.

61. With respect to the complainant's motion to review, the ground that no sufficient findings of fact and/or no sufficient statement of reasons for the order of dismissal is made out in the case of counts 1, 2, 4, 5, 9, 12, 13 and 14. The failure to make adequate findings of fact has nullified the complainant's statutory right of appeal. See Housing Commission of NSW v Tatmar Pastoral Co Pty Ltd and Anor (1983) 3 NSWLR 378 at 381.

62. I turn to the defendant's motion to review which seeks a review of the orders of dismissal made on count 10 and counts 18 - 29 inclusive.

63. In less than a page, the learned magistrate dealt with the elements in the offence created by s229(4) and charged in counts 18 - 29 inclusive. His Worship said:

"Count 18 to 29 involve the same allegation of improper use

of position as an officer of the corporation. The defendant

submits that as all the amounts of money alleged to have

been improperly used are accounted for in the financial

records of the company, this 'mitigates very strongly' in

his favour.

I accept the defendant's submission that the test of honesty

as set out in The Queen v Ghosh (supra) is 'critical to all

these charges'. The High Court has recently discussed the

approach to these types of charges. "

64. His Worship then set out the passage in the majority judgment in Chew to the effect that accrual of an advantage or suffering a detriment is not an element in the offence, and a passage from the judgment of Dawson J to the effect that what amounts to improper conduct is to be viewed by the objective standard alone, and said, "I turn to deal with count 18."

65. The following can be said about this part of the learned magistrate's reasons:

1 As expressed by the learned magistrate, the defendant's

submission does not appear to be material to any issue but

in any event, the learned magistrate failed to state what

weight or relevance he accorded it.

2 As I have endeavoured to demonstrate, Dawson J's view with

respect to the issue of improper use of position as an

officer of a company is not consistent with the view of the

majority of the judges in that case.

66. Before convicting on any of counts 18 - 29 inclusive the learned magistrate needed to be satisfied beyond reasonable doubt of the following matters:

(1) that the defendant was an officer of the company named

in the count;

(2) that he drew the cheque referred in each count;

(3) that viewed objectively, his conduct as particularised

in each count constituted making improper use of his

position as an officer of the company;

(4) if (3) was not made out, that the defendant was

conscious that his conduct as particularised in each count

was an improper use of his position as an officer of the

company;

(5) that the relevant conduct was accompanied by:

(i) an intention to accrue an advantage for the person or

corporation named in each count or to cause a detriment to

the corporation named in each count and

(ii) a belief that the intended result would be such an

advantage or detriment.

67. This is what the learned magistrate said with respect to count 18:

"This charge relates to a cheque drawn and signed by the

defendant on Transequity's account in the sum of $27,500

payable to Stockdale and Leggo, a firm of estate agents. Mr

Andrea gave evidence that the defendant contacted him in

Queensland sometime prior to 7th July 1989 and asked him to

bid at an auction on his behalf. Andrea agreed and did so.

On his arrival in Melbourne the defendant gave Andrea the

cheque referred to in the charge and also instructions as to

what he was to do at the auction. The cheque was to be used

as a deposit if Andrea was the successful bidder. He was

instructed by the defendant to purchase the property through

a company called Aquascent, of which the defendant was a

director.

The property that Andrea was instructed to bid for, namely 4

Blake's Court, Mt Eliza, was the defendant's former

residence which was being auctioned by his mortgagees.

Andrea was successful at the auction and the agreement to

purchase was signed and he handed over the cheque. He

returned to Queensland. The purchase ultimately did not

proceed and the deposit was forfeited.

The defendant admitted in his examination, he wrote out the

cheque. He said he believed it to be 'in relation to an

acquisition he was contemplating'.

The defendant later said that Andrea wanted the asset to be

for Transequity.

The defendant was a director of Transequity at the time. He

had an obligation to ensure that the company did not use its

funds for contracts which he ought to have known would not

be able to be completed.

The tenor of Andrea's evidence, which I accept, was that the

defendant 'was Transequity'. I see no other reason why

Andrea would bid at the auction except the one he gave.

There was some suggestion that the defendant said the

property was part of his remuneration package.

He said he thought Transequity would have been able to

complete the transaction from 'interest income'.

I reject the defendant's explanation as to the anticipated

settlement of the purchase. The only person who stood to

gain from the transaction, it seems to me, was the

defendant.

In the circumstances, I am satisfied beyond a reasonable

doubt that the defendant made improper use of his position

to gain an advantage for himself and this count is proved."

68. In those reasons the learned magistrate failed to address all the essential elements of the offence and in consequence, failed to find sufficient facts to justify the result he reached. Appellate review of the order of conviction on this count is impossible in the absence of sufficient findings of fact, in particular those facts from which an inference might be drawn with respect to the defendant's state of mind. Further, the relevance of some of the reasons is difficult to make out eg, the obligation the defendant had to ensure that Transequity "did not use its funds for contract which he ought to have known would be unable to be completed." The reference to the tenor of Andrea's evidence that the defendant "was Transequity" is difficult to understand and although the learned magistrate said he rejected the defendant's explanation as to the anticipated settlement of the purchase, no facts are found or conclusions stated with respect to the other "suggestions" that the defendant made to him in some manner that is not disclosed.

69. It is unnecessary for me to go through the remainder of the counts seriatim. The reasons for making an order of conviction get briefer and briefer. In each case there is a failure to address all the relevant issues and in each case insufficient facts are found to enable an appellate review of the order. In many cases the reasons vaguely refer to irrelevant matters. In some cases the reasons are brief to the point of being unintelligible eg, with respect to count 24, the learned magistrate said:

"In the Transequity Finance (Aust) Pty Limited cashbook

(exhibit P141) this amount is shown as a loan to PP and F

Finance Pty Limited (PP and F).

The defendant in his examination said the money was payment

for 'certain acquisitions that Transequity may be involved

in or be a consultant to.' He later referred to the fees as

'success fees' and referred to the acquisition of another

company, Dawes Pty Limited later in 1989. Another witness

called by the prosecution, Mr Buggy, was mentioned in that

regard. I heard a lot of evidence from Mr Buggy and,

despite the criticisms made of him, I found the majority of

his evidence to be acceptable.

In some explanation for the use of the money by PP and F,

the defendant later said that removal fees were paid on his

behalf by that company. Andrea gave evidence that he did

not know of this payment.

Having heard the evidence on this count I am satisfied

beyond a reasonable doubt that in authorising the payment of

this sum the defendant acted to the detriment of Transequity

and in so doing made improper use of his position.

Count 24 is proved."

70. Apart from a vague reference to the majority of the evidence of Mr Buggy being acceptable, not a single finding of fact was made with respect to that count and the learned magistrate exposed no reasoning process for reaching the conclusion that he was satisfied beyond reasonable doubt that "in authorising the payment of this sum the defendant acted to the detriment of Transequity and in so doing made improper use of his position."

71. With respect to the defendant's motion to review, the ground that no sufficient findings of fact and/or no sufficient statement of reasons for the order of dismissal is made out in the case of counts 18 - 29 inclusive. The failure to make adequate findings of fact has nullified the defendant's statutory right of appeal with respect to those counts.

72. Mr Melick did not submit that the learned magistrate erred in failing to give adequate reasons for the order of conviction on count 10. Accordingly, I will now hear counsel with respect to any submissions that they wish to make on count 10 and with respect to any other ground relied upon in the motions to review.

73. After making submissions with respect to count 10, both counsel elected not to argue any other ground and I proceeded to determine the motions.

74. In the case of LCA 109/1993 the orders of dismissal on counts 1,2,4,5,9,12,13 and 14 were set aside and the matters remitted for rehearing before another magistrate. With respect to the other orders of dismissal the motion to review was dismissed.

75. In the case of LCA 114/1993 the motion to review the order of conviction on count 10 was dismissed and this matter remitted to the learned magistrate for sentence. With respect to all other orders of conviction, the motion was allowed, the orders set aside and the matters remitted for rehearing before another magistrate.

Australian Securities Commission v Rolf John Schreuder; Rolf John Schreuder v Australian Securities Commission [1994] TASSC 127;

At a glance

Court

Decision date

Before

Source

Judgment (121 paragraphs)

Australian Securities Commission v Rolf John Schreuder; Rolf John Schreuder v Australian Securities Commission [1994] TASSC 127; (1994) 14 ACSR 614 (14 September 1994)

Legislation Cited (1)

Cases Cited (8)