Macleod v The Queen

Macleod v The Queen - [2003] HCA 24 - HCA 2003 case summary — Zoe

[15]

Each of the 25 counts related to an enterprise carried on by the appellant between 1989 and 1994 with an apparent view to obtaining taxation concessions under Div 10BA of Pt III of the Income Tax Assessment Act 1936 (Cth). The indictment impugned certain conduct of the appellant between 5 May 1990 and 25 February 1994; the counts which are the subject of this appeal related to events said to have occurred between 18 February 1991 and 20 December 1991.
The prosecution alleged that the appellant, as director of three companies, had offered investment opportunities in a film production scheme. This had been promoted as involving the acquisition of copyright in primary works, the production and marketing of cinematograph films and the sharing amongst investors of profits derived from the joint ownership of the copyright therein. The three companies were Trainex Pty Ltd ("Trainex"), Starlight Film Studios Ltd ("Starlight") and Communications Entertainment Network Ltd ("CEN").
The appellant was at the relevant times a director of Trainex, save for the period to which counts 20 and 22 related, when he was secretary of the company. The appellant testified that he was the only shareholder in Trainex and there was no evidence that anyone else was beneficially interested in the company. If there were any other directors, they played no part in the company's affairs. Trainex had been incorporated (under a former name) as a proprietary company on 18 August 1977. The Companies Act 1961 (NSW) was then in force and s 114(1) thereof required proprietary companies to have at least two directors. At the time of the conduct the subject of the charges, Trainex, by force of ss 126 and 150 of the Corporations Law[3] ("the Law"), was taken to be a company duly incorporated under that Law. Section 221(1) of the Law required a proprietary company to have at least two directors[4].
Several thousand investors contributed to the scheme promoted by Trainex. The Investor's Deed required Trainex to hold the invested funds on trust for the purpose of film production. The Deed obliged Trainex to deposit the invested funds into a trust account and permitted the company to invest the funds in any interest bearing or discounted securities authorised by the Trustee Act 1925 (NSW). Upon satisfaction of the specified "Subscription Conditions" (essentially the raising of sufficient funds to meet the budgeted film production costs), Trainex was obliged to proceed with the production of the relevant film. The money raised by Trainex was held in several accounts with Chase AMP Bank. These were described to investors as "Trust Accounts" in the Investor's Deed and related correspondence.
Of the funds raised, approximately $718,000 was applied to film production, but more than $2 million was applied to the appellant's own use. The appellant applied some of this money to the purchase of a home unit in Queensland; other amounts were paid to the credit of a loan account in Starlight in the appellant's name on which he subsequently drew. This application by the appellant of the funds required to be held on trust by Trainex placed Trainex in breach of the trusts created by the Investor's Deed.
Counts 1 to 4 on the indictment charged that the appellant had been knowingly concerned in the commission by Trainex of the offence of offering a prescribed interest to the public for subscription or purchase in contravention of ss 169 and 570(1) of the Companies (New South Wales) Code (NSW). Counts 5 to 8 charged similar offences in contravention of ss 1064(1) and 1311(1) of the Law. Counts 9 and 10 charged that, in contravention of ss 1018(1) and 1311(1) of the Law, the appellant had been knowingly concerned in the commission by Starlight of the offence of offering prescribed interests for subscription or purchase without having registered a prospectus with the Australian Securities Commission. Counts 11 to 13 charged that the appellant had been knowingly concerned in the commission of offences by Trainex or Starlight against s 43 of the Securities Industry (New South Wales) Code (NSW) or s 780 of the Law in carrying on a securities business without a relevant licence, authorisation or exemption.
The appellant was convicted on each of these counts and his appeal against each conviction was dismissed except in respect of the convictions on counts 12 and 13. These were quashed by the Court of Criminal Appeal. No appeal has been taken against the decision of the Court of Criminal Appeal in respect of any of these counts.
Six counts on the indictment (counts 14, 16, 18, 20, 22, 24) alleged contravention of s 173 of the Crimes Act. These charged that, as a director (counts 14, 16, 18, 24) or officer (counts 20, 22) of a body corporate, the appellant fraudulently applied for his own use (counts 14, 16, 18), or for purposes other than those of Trainex (counts 20, 22), property owned by Trainex or, in the case of count 24, property owned by CEN. The appellant was convicted on each of these counts, with the exception of count 24, on which he was acquitted. Six other counts (counts 15, 17, 19, 21, 23, 25) were charged as alternatives to these counts; no verdict was taken in respect of the first five. The jury acquitted the appellant on count 25.
In the result, this appeal concerns only counts 14, 16, 18, 20 and 22; the conduct of the appellant in respect of Trainex alone here is in issue. Counts 14, 16 and 18 related to the application by the appellant of three cheques drawn upon the account of Trainex with Chase AMP Bank as payment for the Gold Coast property. Counts 20 and 22 related to two further cheques drawn on the Trainex account with Chase AMP Bank; these were applied at the appellant's direction in payment of the loan account held by him with Starlight.

[23]

Perceived deficiencies in the common law attracted statutory intervention in England and in the Australian colonies throughout the course of the nineteenth century. The elaborate provisions of the Larceny Act 1827 (UK)[11] and the Larceny Act 1861 (UK)[12] are significant examples.
In Australia, as in England, modern statutes, including what now is s 173, have created offences freed from many of the complex distinctions and restrictions of the common law. The statutory offence of obtaining property dishonestly by deception, which was considered in Parsons v The Queen[13], illustrates the point. The definition of "property" in the statute there under consideration[14] was so drawn as to include instruments creating or evidencing choses in action, which were said not to have been capable of being the subject of a charge of larceny at common law. Again, in R v Glenister[15], the Court of Criminal Appeal held that s 173 of the Crimes Act displaced the requirement, which had existed under the common law, to prove an intention permanently to deprive the owner of the property taken.
In Slattery v The King[16], Griffith CJ observed that one result of the "many peculiar rules" of the English law of larceny was "that a person entrusted with property to hold for another, who converted that property to his own use, could not be charged with larceny, because he did not wrongfully take it away, having had it lawfully in his possession". Thus, at common law, the fraudulent breach of trust by a trustee was not a crime; being possessed of the whole legal estate in the trust property, the trustee committed no offence in misapplying that property to his own use[17]. Writing in 1883, Sir James Stephen observed that, as a general proposition, for centuries a borrower who made away with something lent to him was guilty of no crime at common law[18].
In the United Kingdom from 1799, various statutes created offences comprising the misappropriation of property by persons (including clerks, servants, brokers and other agents, bailees and trustees, and, in time, company directors) who had been entrusted to deal with the property in specific ways and thus could not have been convicted of larceny at common law[19]. These offences were expanded and consolidated by ss 67‑87 of the Larceny Act 1861 (UK)[20]. Section 81 thereof was in similar terms to what now is s 173 of the Crimes Act.
Analogous provision had been made in New South Wales by s 5 of the Trustees and Directors Frauds Protection Act 1858 (NSW)[21]. This in turn was repealed and re‑enacted in 1883[22], in language substantially similar to s 173 of the Crimes Act. The latter provision was, at the time of the offences the subject of this appeal, in the same terms as at its enactment in 1900.

[24]

The notion of "consent" was central to the appellant's submissions. The reference to "fraudulently tak[ing], or appl[ying]" in s 173 was said to import a requirement that the accused took or applied the property with the intention of dealing with it in a manner not intended, contemplated or understood by the victim. The "victim" here was Trainex; it was submitted that the company, in which the appellant alone had a beneficial interest, had "consented" to the taking or application, and that that "consent" had not been obtained by deceit or dishonesty. A contravention of s 173, it was said, was impossible where the taking or application occurred with the unanimous consent of the shareholders.
The reforms in England and New South Wales implemented a legislative intention that criminal liability should extend to fraudulent dealings by agents, trustees, directors and others in property which had been entrusted to them for a particular purpose. That expansion of criminal liability left no room for the proposition, which appeared to inform the common law, that a limited expression of consent on the part of the owner, or the possessory interest of the trustee or bailee, provided an answer to a charge of a fraudulent dealing which travelled beyond that consent or interest. The new statutory offences invariably were expressed in terms of a fraudulent dealing carried out in furtherance of some personal use or benefit, or for any purpose other than the purpose authorised by the owner. Thus, to a significant degree, liability under the provisions depended upon the pursuit, to the prejudice of the owner, of benefits personal to the accused and in derogation of the purposes of the owner, rather than upon the identification of expressions of "consent" by the owner or the possessory interests of the accused.
These reforms predated the emergence from the era of the joint stock company of a more fully developed understanding of the distinct legal identity of the corporation, as reflected in Salomon v Salomon & Co[23]. The scope and operation of the provisions necessarily move with those developments; their construction is informed by the proposition that a company has rights, interests and duties which differ from those of its directors, officers and members. The conduct or state of mind of the latter is not always to be attributed to the former; this is particularly evident upon an insolvent winding up. Indeed, the text of s 173 itself distinguishes between the director, officer or member's "own use or benefit" and the "use or purpose" of the "body corporate, or company". The Full Court of the Supreme Court of South Australia referred to like considerations in holding that a person in dominant control of a company is capable of contravening the South Australian analogue of s 173 by fraudulently applying company property for purposes other than the purposes of the company[24].
In R v Gomez, Lord Browne-Wilkinson said[25]:

[64]

The charges arose out of an enterprise conducted by Macleod over the period from 1989 to 1994[56]. The enterprise purported to take advantage of taxation concessions offered by Div 10BA of Pt III of the Income Tax Assessment Act 1936 (Cth). Macleod was a director of three companies, Trainex, Starlight and Communications Entertainment Network Ltd ("CEN"). Trainex was entirely under the control of Macleod. There was no evidence that any other person had any beneficial interest in Trainex.
Through these companies, Macleod purported to make films and videos in which he invited others to invest. Trainex was to receive the funds on the basis of standard documentation that emphasised the secure retention of the investors' funds in trust, pending expenditure on film production. Several thousand investors accepted this invitation, contributing more than $6,000,000. The money raised by Trainex was held in what the Investor's Deed referred to as "Trust Accounts" with Chase AMP Bank.
Macleod's investment scheme offered substantial tax advantages. An investment of $3,000 received a "subsidy" of $7,000. For an outlay of $3,000, an investor received a tax-deductible expense of $10,000. Macleod claimed that this subsidy was funded by overseas finance. There was no evidence of this finance in the company's records.
Investors were furnished with "income statements". They created the illusion that films were being made and were returning profits. Macleod determined the amount of income that was to be paid to investors. There was, however, no income derived from film production. The amounts remitted to investors as income came directly from investor funds.
Of the $6,000,000 invested, only $718,249.27 was used to make films. More than $2,000,000 was applied for Macleod's benefit, including purchasing a home unit on the Gold Coast in his own name and making payments to the credit of his loan account with Starlight.
The Australian Securities Commission investigated the enterprise in late 1991 or early 1992. Significantly, Macleod directed David Staume, Trainex's office and account manager, to store company records in a storage facility in the Sydney suburb of Ultimo to ensure that they would be hidden from the Commission. This was evidence of Macleod's consciousness of guilt.
The Crown contended that the entire enterprise was a "sham" which Macleod practised upon investors to mislead them into believing that their funds were being used in accordance with the terms of the documents which Macleod had provided to them.

[77]

Section 173 itself suggests a dichotomy between the personal use or benefit of the director or officer and the use or purpose of the company. The section proscribes use by an officer of property for any use or purpose other than the use or purpose of the body corporate. This is an objective test.
Under the Crimes Act, whether the taking or application was for the purposes of a corporation is determined objectively by reference to all the circumstances revealed in the evidence[63]. The use and benefit of the company is separate from (although not necessarily inconsistent with) the use or benefit of the accused.
In s 173, "fraudulently" is an adverb that characterises the taking of property for the officer's own benefit or for purposes other than that of the company. The focus of the provision must be on whether the use of the company's property was for the use or purpose of the company. If it was not, it may - is very likely to - be fraudulent or dishonest. In the present case, Macleod applied the relevant property solely for his benefit - it could not be characterised otherwise. And it was open to the jury, as I later indicate, to find that the use was fraudulent.
Section 173 does not require an absence of the "victim's" consent.
However, Macleod claims that R v Roffel[64] is authority for the proposition that the consent of all the shareholders is a defence to a charge of fraudulent taking or application of a company's property. In Roffel, a husband and wife were sole shareholders of a company whose stock and machinery were destroyed in a fire. Despite assuring creditors that they would be paid, the Roffels used most of the insurance payment for their own benefit. Mr Roffel was charged with theft of the company's funds. He defended his actions by asserting his belief that he was entitled to the monies as a company creditor on the basis that the company had originally received the entire business assets of the Roffels' partnership in exchange for shares issued. The jury convicted him. On appeal, he contended that there was no "appropriation" because the company had consented to the taking, the consent being evidenced by the acquiescence of both shareholders.
By majority, the Full Court of the Supreme Court of Victoria held that, when Roffel had taken the money, the company intended him to have it. Accordingly, there was no appropriation. The majority, applying the House of Lords decision in R v Morris[65], held that there is no adverse interference with or usurpation of an owner's property where the owner consents to the taking of the property. Young CJ said[66]:

[113]

The appellant was a director of Trainex Pty Ltd ("Trainex" or "the company") and its sole shareholder. He alone controlled and managed it. Trainex solicited money from the public for investment in film making. Money invested for that purpose could attract an income tax concession for an investor pursuant to Pt III, Div 10BA of the Income Tax Assessment Act 1936 (Cth) ("the Income Tax Act").
The receipt and application of money so invested were governed by deeds executed by Trainex and each investor. The money was to be used to acquire a proprietary interest in films. An example is the deed entered into in relation to a film or series of films called "Toddler Taming", which was to be completed by 30 December 1990. Copyright in the film was to be owned, as to 50 percent by Trainex, and as to the remaining 50 percent by investors in proportion to their investments. By cl 2.2 of the deed Trainex was to deposit the invested funds into a trust account; by cl 2.3 Trainex was permitted to invest the funds in any interest bearing, or discounted securities authorised by the Trustee Act 1925 (NSW). On fulfilment of several conditions, including in particular the raising of sufficient money to meet the budgeted cost of making the film, Trainex was, by cl 5, to proceed to make it.
By cl 6.1(a) of the deed each investor was to be one of the first owners of the copyright in the film: otherwise the taxation benefits available under Pt III, Div 10BA of the Income Tax Act would not be available. There was an acknowledgment in the deed (cl 8.1) that from the completion date (as defined), the copyright in the film would be owned by the investors and Trainex in the proportions already mentioned.
It was a term of the deed, subject to some presently irrelevant exceptions, that Trainex or its agent would hold on behalf of the investors all rights necessary to make and market the film (cl 6.1(b)). The disbursement of the nett proceeds of the film was governed by cl 10 of the deed. Investors were entitled to a return of the amount invested, and, after repayment of any money provided by others in respect of the completion of the film, a proportionate share in any additional proceeds.
Each investor was sent a letter by Trainex. The letter in respect of another proposed film, "The Paradise Kids", was as follows:

[136]

The appellant submits that he could not be guilty of any fraud upon the company because it, or he, on its behalf consented to the use of, and the application of the money on his behalf. The use of the money was however in no fewer than three respects "unlawful". It was done in breach of the appellant's duties as a director. This was so whether or not the appellant was convicted on a charge under s 229 of the Companies (New South Wales) Code or its subsequent analogue in the Corporations Law because on any view the way in which the funds were applied by the appellant could not be regarded as an honest or reasonably careful and diligent discharge of the appellant's duties. The use of the money constituted a breach of trust, and although the memorandum and articles of association of Trainex were not before the Court, it is plain that the money used by the appellant was not used in pursuance of the objects of the company. Whether unlawfulness is or is not necessarily to be equated with fraud or dishonesty, it is relevant to the question whether fraud or dishonesty is present. Taken to their logical conclusion the appellant's submissions would, if correct, mean that no matter how the appellant chose to use Trainex's money, the company (by him) could always validate that use by consenting to it. I cannot accept this submission. It ignores the vital distinction which the law draws between separate legal personalities. It is a distinction which s 173 itself makes. The funds or property of a company can only be used or applied as the result of some act or conduct on the part of a natural person. The fact that the natural person so acting is in effective control of the company does not mean that he is the company, or that no distinction may be drawn between what he does and what the company may and should lawfully do.
A director or officer acting in breach of his obligations under statute law relating to companies, or in breach of its memorandum and articles of association, by using the money of the company for his own purpose is no more the voice or the amanuensis of the company, as between himself and the company, than a thief who gains access to its treasury and steals money from it, or a forger who forges a company cheque in his own favour. Nor can it be overlooked that s 173 in terms also renders criminal a fraudulent taking or application of property for other than a use or purpose of the company. In acting as he did in applying the money to which Trainex had legal title, but in respect of which it owed express fiduciary duties, he was not acting for or on behalf of the company, or indeed as the company, but in his own interests.
The appellant submitted that "fraudulently" as used in the Act meant more than merely "dishonestly", that it required an added ingredient of trickery or deceptiveness of conduct as well as of intent.
No matter how the word "fraudulently" in s 173 of the Act is to be understood the appellant was shown to have acted fraudulently here. An explanation of what dishonesty involves will rarely require elaboration to a jury by a trial judge. In this respect what was said by Toohey and Gaudron JJ in Peters v The Queen is apposite[99]:

[143]

On the second day of his Honour's summing-up, the trial judge gave some additional directions to the effect that the accused's state of mind could be relevant to whether or not he acted improperly (language analogous to the terminology used in the Corporations Law, s 232(6)[103]): that if he reasonably believed that what he did was for the benefit of the company that might be relevant in determining whether he could be held criminally responsible for using his position as he did. His Honour then said that "the accused case after counts one to thirteen" is that he was entitled to use the company funds in the way in which he did. His Honour did not give any further directions as to the claim of right except to remind the members of the jury of what appeared in the written directions that they had already been given, that "in assessing the accused's case that he was entitled to use the company money as he did you should apply the ... standards of ordinary decent people."
The appellant submitted that these directions could not have brought home to the jury that, in respect of the fraud charges, the Crown had to show that the claim of right was not only not reasonably held, but also not genuinely held. It was submitted that such an omission was particularly damaging to the appellant because none of the evidence showed, or tended to show fraud on the company, or any intention to deprive it of the means of discharging its obligations to the shareholders and creditors. The submission can immediately be seen to be wrong because it ignores that the investors were not only beneficially entitled under the deed, but also were creditors of the company.
The appellant submitted that the Court of Criminal Appeal erred in holding that there was ample evidence on which the jury could conclude that the appellant, at the relevant time, acted dishonestly, and overlooked the misdirections and omissions of the trial judge in his summing‑up to which the appellant referred and which I have summarized. The appellant added that none of the matters listed by Simpson J[104] pertained to the relevant applications of the company funds: that none showed, or tended to show, that the application of the company's funds - as distinct from their solicitation from the investors - was fraudulent. It might be that there were various misrepresentations to investors, but the appellant was not charged with defrauding them. Her Honour's conclusion involved a failure to focus on the need to establish that the relevant application of funds was dishonest - not that their original procuration from investors was. This was an error which the summing-up left open to the jury.
These submissions should be rejected. The emphasis that the trial judge placed in his summing-up, on the need by the respondent to prove the appellant's dishonesty made it abundantly clear that the genesis of his belief was in issue. Just as absence of proof of dishonesty would mean that the prosecution had not made out its case, absence of proof that an accused's claim of right was not an honest one, would entitle the accused to an acquittal. Both as to the proof of the offences, and any other defence offered in respect of them, the accused's honesty or dishonesty of mind and purpose was crucial. As Gibbs J said in R v Pollard[105]:

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