which could only have served to reinforce the impression conveyed by the Annual Report.
26 Direct self gain was not an element of the offence, which rests upon a legislative intention to punish the making of and/or authorising misleading statements in relation to documents which are required by the Act, or which are lodged with ASIC. In this regard the Annual Report of a corporation is a most important document from which prospective and existing shareholders, and those who engage in financial dealings with it glean information as to its current financial state and prospects.
27 For the reasons identified by Debelle J in R v Hodgson (2002) 84 SASR 168, a failure to properly discharge the duties owed in respect of the preparation and release of annual reports involves serious criminality, which risks undermining the public confidence in published accounts, that is essential for the orderly conduct of financial markets.
28 In the present case there was a most serious departure from the acceptable standards of competence and diligence expected of the Chief Executive Officer of a major public company, which could not have done other than to present a most misleading picture to shareholders, policy holders, and creditors, as well as the Australian Stock Exchange, ASIC, and the Australian Prudential Regulatory Authority. I find that the Defendant's criminality fell into the upper range for the offence charged.
29 It is accepted that the offence involved in the third count was the least serious of the three charges to which the Defendant pleaded. It arises from the misleading impression conveyed by the letter of comfort to noteholders which the Defendant signed, and which confirmed that it was HIH policy for its subsidiaries to be managed and operated in such a way as to meet their obligations, and that it followed this policy with respect to FAI.
30 The letter was signed and released in circumstances where the Defendant had made no inquiries as to whether FAI had complied with its obligations to the medium term noteholders who had taken up notes to the value of $75M. The breach arose from the circumstance that the group shareholder funds for FAI and its subsidiaries had fallen below the minimum requirement of $200M, in fact by approximately $165M. This was a matter of considerable significance since, if it was not remedied within 90 days, after notice of a breach was given, it provided a trigger permitting noteholders to require immediate repayment. Any such action would have had a flow on for the other banking or credit facilities held by the HIH group.
31 It is shown by the agreed facts that the Defendant knew of the potential for default by 12 October 2000, at the very latest, and that the auditors had not yet provided, for the 1998/1999 financial year, the certificate as to compliance, which was required under the MTN programme. In this instance there was a clear failure to perform the duty which was owed to investors, who were entitled to rely on the complete and accurate discharge of that duty.
32 It was the Defendant's contention that the criminality involved in this count was minimised by the circumstance that a proposal had been developed, which was later implemented (on or about 24 November 2000), to boost the net assets of the FAI consolidated accounts through a subordinated redeemable preference share issue. That provides a partial, although not a complete, argument in favour of some mitigation of the objective criminality involved. It does not however address the proposition that the market and Westpac, which was the agent for the MTN program, remained unaware of the existence of the earlier default, and the noteholders were never provided with truthful information concerning the FAI group shareholder funds as at 30 June 1999.
33 While the failure to provide timely notification of the default is not part of the criminality alleged for this offence, the fact remains that the letter was capable of providing a false impression to noteholders that all had been, and remained, well, in relation to the issue. They were deprived of a potential opportunity to redeem their notes, of which they had been unaware and remained unaware. In the winding up, as the agreed statement of facts shows, their prospect of receiving any return is very slight, although whether the same consequence would have occurred had there been an earlier request for payment is not capable of determination upon the material placed before me.
34 The Defendant is to be sentenced for this count upon the basis of recklessness in not making any inquiries as to whether the group shareholding had been increased to a sum not less than $200M, or as to whether the Auditor's Compliance Certificate had been issued before signing and releasing the letter, rather than upon the basis of intentional dishonesty, since he was charged in terms of s 184(1)(b). That clearly is a relevant circumstance in the assessment of his objective criminality, which the Crown concedes was not in the higher range of seriousness that existed for the remaining counts. I accept that to be the case, although as with those counts there was still a serious breach of the duty which is expected of corporate controllers, and which is essential for the orderly conduct of financial and equity markets. The maintenance of faith in the due performance of that duty is of vital significance to the economy: R v Kearns [2003] NSWCCA 367 at [4] to [5] per Spigelman CJ.
35 In sentencing the Defendant for these offences there are five circumstances of relevance for an assessment of his objective criminality that must not be overlooked.
36 First, and foremost, I am to assume that the counts preferred in the indictment represent the totality of his criminality in relation to the management of HIH and its subsidiaries, and that the disposition of these matters will bring to an end all potential criminal investigations in relation to him.
37 Secondly, he is to be punished for those offences as charged and particularised, involving offences of recklessness, and material omission, giving rise to misleading statements, and not upon the basis of intentional dishonesty in the form of embezzlement or fraud, which might have supported more serious charges, either under the Corporations Act or other criminal legislation. To take any other approach would be to offend the principles in De Simoni v The Queen (1981) 147 CLR 383.
38 Thirdly, the Crown does not contend that the offences contained in the indictment caused the collapse of HIH. That, it was conceded, arose by reason of a history of mismanagement which extended over a number of years, the nature and extent of which was investigated by the HIH Royal Commission. The causes were obviously multifactorial, and there is no suggestion that all of the responsibility for it could be sheeted home to the Defendant alone.
39 Nevertheless the offences span the last three years of HIH, and I accept the Crown submission that they were likely to have contributed, to some degree, to the prolongation of its life, by facilitating the raising of further capital, and by misrepresenting the group's financial position.
40 In favour of the Defendant is the fact that he did not, at any time, seek to limit his own losses by selling any portion of the very substantial holdings in shares, convertible notes and options in HIH to which he had either a direct entitlement in his own name, or a potential entitlement through the RR Williams Superannuation Fund. Nor did he encourage members of his family to do so. While any such sale might have attracted an application of the insider trading laws, the fact that this was not necessarily the deterrent for any such action was indicated by the fact that during 2000 he acquired further shares in the company through a salary sacrifice programme.
41 Fourthly, it is not contended that the Defendant was the architect of, or solely responsible for, any of the three offences, or that they were committed for the immediate purpose of generating some personal gain for himself. Others within the company were similarly culpable for what occurred, or was allowed to occur. To what extent these events permitted the group to continue trading is incapable of determination by me. At most it can be said that they were part of a wider history and pattern of mismanagement which, in combination, eventually led to the collapse. So far as they may have helped prop up the group and the value of its shares for a time, or delayed intervention by security holders or creditors, there was no doubt some indirect, although temporary benefit to shareholders and Directors, including the Defendant.
42 Fifthly, it is important to recall the caution which was expressed in R v Rivkin [2004] NSWCCA 7 at [426] to [428] to the effect that the sentences which are to be imposed must comply with settled principles for sentencing and be proportionate to the objective criminality involved, and are not to be driven or influenced by a "sense of outrage" stemming from outside sources, whether they be the media or otherwise.
43 Notwithstanding the foregoing, the three offences involved in this case were objectively serious, and they effectively extended over a somewhat lengthy period.
44 They are such as to call for the Defendant to be sentenced in accordance with the approach to white collar or commercial crime which has been consistently confirmed. For example in R v Corner NSWCCA 19 December 1997, the court (Powell JA, Beazley JA and Sperling J) said, in a Crown appeal against leniency, brought in respect of sentences imposed for breaches of the Companies (NSW) Code (at p.9):
"The seriousness with which this Court approaches white collar or commercial crime and the need for deterrence as an important consideration in the sentencing process, especially as offences of this sort are notoriously difficult to detect, is well documented. As Wood J (Carruthers J agreeing) said in Pantano (1990) 49 A Crim R, 328 at 330:
"[T]hose involved in serious white collar crime must expect condign sentences. The commercial world expects executives and employees in positions of trust, no matter how young they may be, to conform to exacting standards of honesty. It is impossible to be unmindful of the difficulty of detecting sophisticated crime of the kind here involved, or of the possibility for substantial financial loss by the public… The element of general deterrence is an important element of sentencing for such offences".
See also McKechnie (unreported, Court of Criminal Appeal, NSW, 1 October 1987); Yuill (unreported, Supreme Court, NSW, 14 September 1994 Dunford J); Yuill (No 2) (unreported, Supreme Court, NSW, 13 December 1995, Barr AJ); Craven (1995) 17 ACSR 368; Carter (unreported, Supreme Court, NSW, 29 September 1995, Barr AJ); Glenister [1980] 2 NSWLR 597; Hawkins (1989) 45 A Crim R 430 at 436."
45 These comments were also cited with approval in R v Rivkin [2004] NSWCCA 7 at [423].
46 In Corner the Court also noted (at p 10) the relevance of particular and general deterrence in the sentencing process for crimes of this nature, citing the well known observation in R v Radich [1954] NZLR 86 where the Court stated at 87:
"One of the main purposes of punishment…is to protect the public from the commission of such crimes by making it clear to the offender and to other persons with similar impulses that, if they yield to them, they will meet with severe punishment. In all civilised countries, in all ages, that has been the main purpose of punishment, and it still continues so. The fact that punishment does not entirely prevent all similar crimes should not obscure the cogent fact that the fear of severe punishment does, and will, prevent the commission of many that would have been committed if it was thought that the offender could escape without punishment, or with only light punishment."
47 Although said in relation to a different form of white collar crime, the observations of the Court of Criminal Appeal of Victoria in R v Moffat, Vic CCA 15 December 1992, which were cited with approval in R v Martin (1994) 74 A Crim R 252 at 256, also underline the fact that the general deterrence factor is important in this area of criminality, and may require a custodial sentence, even though the offender has an unblemished prior record. See also the observations of the Court of Appeal in R v Brown [2002] VSCA 99 at [52] as to the need for the element of deterrence, in cases such as the present, to impact both on the total sentence and the minimum term, a theme which was also taken up in DPP v Bulfin (1998) 4 VR 114 at [131] to [132].
48 As Smart AJ also made clear in R v Boskovitz [1999] NSWCCA 437 the individual responsibility of Directors in not engaging in corporate conduct that involves dishonesty, or the making of false statements, cannot be overemphasised. His Honour observed that the decision of the Court in that case should stand as a strong warning to others: see observations to similar effect in Regina v Wall [2002] NSWCCA 42. Although it was submitted that the present case was not a suitable vehicle for general deterrence, I am not persuaded why that should be so.