Barnes v The Queen - [2010] NSWCCA 136

NEW SOUTH WALES COURT OF CRIMINAL APPEAL

CITATION:
Barnes v R [2010] NSWCCA 136

FILE NUMBER(S):
2009/4501

HEARING DATE(S):
11 May 2010

JUDGMENT DATE:
30 June 2010

PARTIES:
Gregory Bennet Barnes (Appellant)
Regina (Respondent)

JUDGMENT OF:
Macfarlan JA Hidden J Johnson J

LOWER COURT JURISDICTION:
District Court

LOWER COURT FILE NUMBER(S):
2009/11/0185

LOWER COURT JUDICIAL OFFICER:
Williams DCJ

LOWER COURT DATE OF DECISION:
10 December 2009 (on conviction)

COUNSEL:
D J Fagan SC/P G Bolster (Appellant)
P Hastings QC (Respondent)

SOLICITORS:
Kemp Strang Lawyers (Appellant)
Commonwealth Director of Public Prosecutions (Respondent)

CATCHWORDS:
CRIMINAL LAW - conviction appeal - officer of a corporation convicted of making available to the Australian Stock Exchange information that was false or misleading in a material particular - whether evidence capable of establishing knowledge of provision of information and of its alleged false or misleading character
CRIMINAL LAW - evidence - minute of directors' meeting admitted into evidence for a purpose other than proof of the truth of the assertions contained in it - part of minute not admissible for that other purpose - real chance that the jury misued that part of the minute

LEGISLATION CITED:
Corporations Act 2001 (Cth)
Criminal Appeal Act 1912

CATEGORY:
Principal judgment

CASES CITED:
R v R (1989) 18 NSWLR 74
The Commissioner of Taxes (South Australia) v The Executor Trustee Agency Co of South Australia Ltd [1938] HCA 69; (1938) 63 CLR 108
The State of South Australia v The Commonwealth of Australia [1992] HCA 7; (1991-1992) 174 CLR 235

TEXTS CITED:

DECISION:
(1) Grant leave to appeal in respect of the appellant's contention that a purported directors' minute of 12 February 2004 was wrongly admitted into evidence at the trial;
(2) In respect of both counts upon which the appellant was convicted, allow the appeal and quash the conviction; and
(3) On both counts direct that a judgment and verdict of acquittal be entered.

JUDGMENT:

IN THE COURT OF
CRIMINAL APPEAL

CCA 2009/4501
MACFARLAN JA
HIDDEN J
JOHNSON J
30 JUNE 2010

Gregory Bennet BARNES v R

Judgment

MACFARLAN JA: On 10 December 2009 the appellant was convicted of two charges under s 1309(1) of the Corporations Act 2001 (Cth). He was sentenced to a term of imprisonment of 9 months, to be released on a recognizance after 6 months. He was released on bail pending the determination of the present appeal against his conviction.
Relevantly to this appeal, s 1309(1) provides that an officer of a corporation who makes available or permits the making available to an operator of a financial market, in this case Australian Stock Exchange Ltd (“ASX”), of information that relates to the affairs of the corporation and that, to the knowledge of the officer, is false or misleading in a material particular, is guilty of an offence.
In 2003 and 2004 the appellant was the managing director of Chameleon Mining NL (“the Company”). The charges against him related to the provision by the Company to the ASX of its Half Yearly Report for the period ended 31 December 2003 and its Annual Report for the financial year ended 30 June 2004.
The charges upon which the appellant was convicted were as follows:
“1. On or about 15 March 2004, at Sydney, New South Wales, and elsewhere, being an officer of a corporation, namely Chameleon Mining N.L. (‘the Corporation’), did make available or permit the making available of information to an operator of a financial market, namely the Australian Stock Exchange Limited, being information contained in a document titled ‘Chameleon Mining N.L. Half Yearly Report’ for the period ended 31 December 2003, that related to the affairs of the Corporation, that to his knowledge was false or misleading in material particulars.
Particulars of falsity and misleading
(i)It was represented in the notes to the financial statements (page 15) that the Corporation had ‘set aside the funds required for the Fijian Exploration Program in the form of a Secured 3 month Term Loan Receivable, renewable each 3 months, earning an interest rate of 9% per annum’, whereas in fact the Corporation had no such funds set aside.
(ii)It was represented in the financial statements (page 11) that the Corporation had received $3,242,565 in cash from its share issue, whereas in fact $3,000,000 of that amount had not been received in cash as the two main shareholders of the Corporation, namely Zenith Development Company Limited and ACN 103 850 406 Pty Limited, had not paid cash for the shares issued to them.
(iii)It was represented in the Independent Review Report (page 20) that the directors of the Corporation were of the view that there was a debt of $3,000,000 owing to the Corporation and that it was fully recoverable, whereas in fact the accused, who was a director of the Corporation and a signatory to the Report, knew that the alleged debt was of doubtful validity and was disputed.
2. On or about 30 October 2004, at Sydney, New South Wales, and elsewhere, being an officer of a corporation, namely Chameleon Mining NL (‘the Corporation’), did make available or permit the making available of information to an operator of a financial market, namely the Australian Stock Exchange Limited, being information contained in a document titled ‘Chameleon Mining N.L. Annual Report’ for the financial year ended 30 June 2004, being information that related to the affairs of the Corporation, that related to the affairs of the Corporation, that to his knowledge was false or misleading in material particulars.
Particulars of falsity and misleading
(i)It was represented in the Chairman’s report (page 8), when read in conjunction with the financial statements, that the Corporation had loaned Zenith $3,100,000 and that a similar amount was ‘agreed to be offset against a facility that Zenith would obtain … ’, whereas in fact the Corporation had not loaned any moneys to Zenith.
(ii)It was represented in the financial statements (page 18) that the Corporation had a ‘short term loan’ of $3,000,000 whereas in fact the Corporation had no such short term loan.
(iii)It was represented in the financial statements (page 26) that the Corporation had a loan on deposit of $3,100,000 whereas in fact the Corporation had no such loan on deposit.
(iv)It was represented in the financial statements (page 18) that the Corporation had received $6,795,469 in cash from the issue of its shares, whereas that figure was overstated by at least $3,000,000 as the two main listed shareholders of the Corporation, namely Zenith Development Company Limited and ACN 103 850 406 Pty Limited, had not paid cash for the shares issued to them”.
The appellant contended that the jury verdicts finding him guilty of these charges were flawed because first there was no evidence at his trial that he knew that the statements particularised in the charges were included in the reports submitted to the ASX, secondly that there was no evidence of the falsity of those statements, thirdly that there was no evidence that the appellant knew the statements to be false and fourthly that a purported director’s minute of 12 February 2004 was wrongly admitted into evidence at the trial.
The ‘no evidence’ grounds referred to in the preceding paragraph raise questions of law alone so that leave to appeal is not required under s 5(1) of the Criminal Appeal Act 1912: R v R (1989) 18 NSWLR 74 at 84. Leave to appeal is required with respect to the ground alleging wrongful admission into evidence at the trial of the purported directors’ minute of 12 February 2004. Leave to appeal ought be granted in that respect.
Factual circumstances
During the calendar years 2003 and 2004 the appellant was the managing director of the Company and at the same time carried on practice as a consulting geologist from an office in Perth. Mr Landan Roberts was an executive director and the secretary of the Company. He maintained the Company’s financial and other records at an office in Sydney that was also the place of his residence. He professed to have expertise in relation “to accounting and the preparation of company financial statements” (appellant’s Written Submissions at [3]).
Mr Roberts’ office in Sydney was shared by Mr Phillip Grimaldi who was a chartered accountant and consultant to the Company. The Company’s external review accountant and auditor was Mr Keith Jackson of the firm Jackson Greeve.
Apart from the appellant and Mr Roberts, the directors of the Company at the relevant times were the Hon Nick Dondas AM (who was chairman and non-executive director) and Mr Suliana Niurou (who was the Exploration Director).
On 23 July 2003 the ASX admitted the Company to the Official List of the ASX subject to the satisfaction of a number of conditions precedent. One of these was the close of an offer made in a prospectus issued by the Company on 21 January 2003 and in a supplementary prospectus of 16 April 2003 (together referred to as the “Prospectus”) and “completion of the allotment and issue of at least 16,000,000 and up to 37,500,000 ordinary shares each fully paid at an issue price of $0.20 per share and at least 8,000,000 and up to 18,750,000 options exercisable at 20 cents each on or before 8 January 2008”. The share register of the Company reveals that to satisfy the condition as to the issue of at least 16,000,000 fully paid shares the Company was reliant upon the issue of 15,000,000 fully paid shares to Zenith Development Corporation Ltd (“Zenith”) and ACN 103850406 Pty Ltd (“ACN”). The ASX was informed that all relevant conditions had been satisfied and thereafter listed the Company’s shares on its Official List.
Notwithstanding that the shares issued to Zenith and ACN were treated as “fully paid”, it was common ground that the Company did not at any time receive any money in consideration for the issue of the shares. Instead the issue of these shares appears to have been treated as giving rise to an indebtedness of Zenith and ACN to pay to the Company the $3,000,000 consideration for the issue of the shares.
At about this time the Company and a subsidiary of it, Tembo Gold Holdings Pty Ltd (“Tembo”), entered into an “Option to Acquire Deed” (the Option”). Under the Option, which bore a date of 16 July 2003, Zenith granted to Tembo an Option to purchase for the price of A$14,595,214 Zenith’s interest in an “Instrument” issued by the Brazilian Government. The Option provided that Tembo was to pay to Zenith an Option fee of A$3,100,000 and that the Company guaranteed Tembo’s obligations. Zenith was given a right to set-off any debt owed to it by the Company against any debt Zenith owed to the Company.
The appellant was overseas from 13 June to 6 August 2003 but there were in evidence Minutes of Meetings of Directors of the Company approving the Option. These recorded the appellant as being present by telephone, but were not relied upon by the Crown as evidencing the appellant’s knowledge at this time of the Option. Indeed in its Written Submissions on appeal the Crown indicated that the appellant may not have been aware of the Option until much later.
The Option was entered into as a result of communications between the Company on the one hand and a Mr Trevor Prider and his son, Ian, a solicitor, on the other. Zenith and ACN were companies with which Mr Trevor Prider had a connection and for which Mr Ian Prider was legal representative. The Crown alleged at the trial that the share issue and the Option were inter-related and that the Option fee was intended to constitute satisfaction of Zenith and ACN’s debt in respect of the share issue.
The evidence as to the appellant’s involvement in communications relating to the consideration for the share issues and to the Option in the period leading up to the lodgement with the ASX of the two Company reports the subject of the charges against the appellant included what is described in the following paragraphs. Other communications occurred in this period but there was no direct evidence of the appellant’s involvement in these communications. These latter communications included a number concerning the preparation and lodgement with the ASX of an independent expert’s report of Mr Jackson confirming that the Company met the ASX’s working capital requirement.
On 31 December 2003, Mr Trevor Prider met with the appellant, who told Mr Prider that he would “go to the newspapers if Zenith/ACN did not pay” to the Company the $3,000,000 owing in respect of the share issue (respondent’s Written Submissions [45]).
On 2 January 2004 Mr Trevor Prider faxed to the appellant a notice on behalf of Zenith alleging that the Company was in default under the Option (presumably in not paying the Option fee).
On 5 January 2004 Mr Grimaldi sent a memorandum to Mr Trevor Prider requiring information to be given to the Company about the Instrument the subject of the Option, and threatening legal action in the event of default in supply of the information.
In a letter of 5 January 2004 from the appellant to various persons including Mr Grimaldi and Mr Ian Prider, the appellant said “[w]ithout a doubt it is the lack of the management’s ability to draw down on trust money [apparently a reference to the $3,000,000 share issue consideration] that is becoming a major impediment to all geological work and especially the share price”.
On 19 January 2004 Mr Ian Prider wrote to Mr Roberts (with a copy to the appellant) denying that Zenith and ACN owed any money to the Company. He relied upon the set-off provision contained in the Option. Mr Prider’s letter was expressed in adamant language.
On 23 January 2004 the appellant replied to Mr Ian Prider saying that it had been his understanding that Mr Prider was holding $3,100,000 in trust for the Company (being the consideration for issue of the shares). This was suggestive of, but did not of itself prove, knowledge of the appellant of some communications in 2003, to which he was not a party, dealing with this topic.
By a letter of 2 February 2004 from Mr Ian Prider to the appellant, Mr Prider denied that he had sent a letter to Mr Jackson stating that funds were held in trust for the Company. He said that due to the set-off to which Zenith (and, by implication, ACN) was entitled, Zenith (and ACN) did not owe any money to the Company.
The appellant acknowledged receipt of this letter in a response of 5 February 2004.
On 9 February 2004 Mr Grimaldi wrote to Mr Ian Prider saying that the shares allotted to Zenith and ACN were “allotted as shares for cash” and that Mr Prider’s clients were “holding shares from an invalid allotment” (presumably because cash had not been paid for the shares). He then said:
“To help you and your clients to receive shares which are properly allotted the company needs to take corrective action. We need a meeting with you to discuss how this can be achieved”.
A meeting at which Mr Ian Prider and the appellant were present took place on 12 or 13 February 2004. A proposition involving ACN selling its shares was proffered by the appellant but rejected by Mr Prider. The appellant referred to this meeting in a letter which he wrote to Mr Prider on 17 February 2004. In that letter the appellant referred to “the $3 million hole that appears to have been created”.
On 12 February 2004 the appellant wrote a letter to Mr Trevor Prider which included the following:
“As you know I met with Ian Prider today in Sydney … Ian made it clear to me and Koh that the two companies, Zenith Developments [sic] Company Ltd and ACN 103850406 would not be paying any money for 15,000,000 shares and 7,500,000 options. Further, that there was no room for compromise, that he was a lawyer and that he knew what he was doing.
…
As you know at the time of the allotment of shares ACN 103850406 Pty Ltd was not involved in the government bonds deal so its shares were issued for cash and allotted for cash. In the case of Zenith the government bonds deal was executed after the allotment of the shares and the shares were also issued for cash. Also bearing in mind and [sic] Ian was aware of this fact to issue all the shares other than cash would not have enable [sic] Chameleon to list [on the ASX] and we would not have done the deal under any circumstances. So the allotment had to be for cash. Ian’s letter of the 16^th July clearly states that the two companies concerned had the capacity to pay for the shares. That did not mean changing the method of allotment and if he new [sic] that this was needed he should have said so.
We cannot move forward without money and if we are unable to reach an amicable solution to this issue, the directors of the company will take the appropriate course of advising the ASX. The company will be suspended from listing and your shares will accordingly be forfeited, resulting in no benefit to you whatsoever”.
A meeting at which the appellant and Mr Ian and Mr Trevor Prider were present occurred on 13 February 2004.
In a memorandum of 16 February 2004 Mr Grimaldi said to the appellant: “… [m]y advise [sic] is that we must do the following (a) get Trevor to confirm to our auditors that they have cash for the shares in a bank account. (b) get our half yearly report out (c) confirm if the bonds [referring to the Instrument the subject of the Option] exist or not (d) then take action against the Priders to get the shares back or to sell the shares down over the next 6 months and put the money in the company …”.
In a fax to the appellant of 17 February 2004, Trevor Prider said that the Company’s “demand on Zenith made by [Mr Roberts] … precludes Zenith from providing any further support by way of bank or legal statements created by [the Company] filing false or misleading reports to the appropriate Body.
If any assistance was sort [sic] and made it would have to be via a third party and any bank costs absorbed by [the Company]”.
On 19 February 2004 the appellant said in a letter to Mr Trevor Prider:
“I was hoping to get from you today re the situation with the $3 million [sic]. This will be needed fairly quickly as we need to get it via the auditors etc, some days before the close off date.
Can you give me some urgent indication as to when this will occur?”.
Mr Trevor Prider gave evidence that at about this time he undertook to the appellant to “see what we could do” about obtaining $3,000,000 “to cover the hole that [the Company] had”. Mr Prider had suggested to the appellant that he may have been able to assist the Company “by getting a loan and get the availability of cash [sic]” (Transcript p 153).
On 25 February 2004 Mr Trevor Prider sent a fax to the appellant which included the following:
“Further to your request, I confirm that subject to the normal terms and conditions of the existing account holder, a facility is being established within a sub account in United States dollars for an amount equivalent to Aus$3,000,000 which will be evidenced in writing by the bank to the designated (sub) account holder of record”.
The appellant responded by letter of 3 March 2004 seeking “written acknowledgment from the bank holding the A$3,000,000”.
There was no evidence that arrangements of this type were concluded.
On 12 March 2004 Mr Ian Prider sent a letter to the Company in the following terms:
“It is my client’s position that Zenith Development Company Ltd has paid in full for the shares issued to Zenith Development Company and [its] nominee A.C.N. 103 850 406 Pty Ltd.
It is my client’s position that Chameleon Mining N.L. entered into a loan agreement – which you are aware of – with Zenith Development Company Ltd. to meet Chameleon’s [sic] Mining NL. investment objectives, and as at 31^st December 2003, the principal amount of AU$3,000,000.00 remains with Zenith.
As you are aware Zenith is a company of substance”.
Mr Prider gave evidence that he was asked by Mr Grimaldi to provide this letter. There was no direct evidence that the appellant was aware of the provision of the letter.

On 12 March 2004 Mr Roberts wrote a letter to Mr Jackson which included the following:
“
On 16^th July, 2003 Zenith and ACN sent you a letter detailing their application for shares in [the Company].
On 8^th August, 2003, Zenith and ACN agreed to pay for those shares.
On 8^th August, 2003, the directors of Chameleon agreed to grant to Zenith and ACN a short-term loan short-term [sic] loan facility for a period of 3 months, at an interest rate of 9% per annum.
On 8^th November, 2003, the directors of Chameleon agreed to renew the loan facility for a further term of 3 months.
On 8^th February, 2004, the directors of Chameleon agreed to renew the loan facility for a further term of 3 months.
The Direction Letters evidencing the loan and the renewals of the loan are attached herewith.
The security for the short-term loan facility is the issued holdings each company holds in CHM. The conditions of the loan facility are that shares are to remain unsold and held as security until the debt has been extinguished to the satisfaction of the company”.
The “Direction Letters” there referred to included copy letters bearing the date 8 February 2004 signed by the appellant and Mr Roberts agreeing to the renewal of loans to Zenith and ACN (in respect of the consideration for the shares issued to Zenith and ACN) for “another period of 3 months” at an interest rate of nine per cent per annum. The sequence of correspondence strongly suggests that these “Direction Letters” were signed by the appellant on or about 12 March 2004.
The Company’s Half Yearly Report for the period ending 31 December 2003 (the “Half Yearly Report”) was lodged with the ASX on 15 March 2004. The Directors’ Declaration contained in the Report bore what appeared to be the signatures of the appellant and Mr Roberts but the appellant’s signature, as was confirmed by the evidence of a handwriting expert called to give evidence by the appellant, was one which had been copied from another document signed by the appellant. The Half Yearly Report was accordingly not signed by the appellant and there was no evidence of his involvement in the preparation or lodgement of the Report. The evidence of Mr Jackson was that he did not have any communications with the appellant about the preparation of the Half Yearly Report.
The parts of the Half Yearly Report, rendered relevant by the particulars set out in [4] above of the charges against the appellant, were as follows:
(a)The Notes to the Financial Statements state that the “Company has ‘set aside the funds required for the Fijian Exploration Program in the form of a Secured 3 month Term Loan Receivable, renewable each 3 months, earning an interest rate of 9% per annum’”.
(b)In the Condensed Statement of Cashflows for the six months ended 31 December 2003, forming part of the Financial Statements, “Proceeds from Share Issue” are shown as $3,242,565. This entry appeared under the heading “Cashflow from Financing Activities” and immediately after an outflow figure of $3,000,000 described as “Short-Term Loan Receivable”. Bearing in mind the context in which it appears, it is clear that this item relates to the loan by the Company to another party or parties of the $3,000,000 of the proceeds of the Share Issue.
(c) In the Independent Review Report the following appeared:
“A debtor of three million dollars is included in Receivables, the recovery of which is necessary for the going concern basis of the Company. The Directors advise that this amount is fully recoverable and when received is to meet exploration expenditure”.
On 25 May 2004 Mr Jackson wrote a letter to the Company which was copied to the appellant. It referred to the upcoming “30 June audit” and included the following statement:
“We note that in your letter of 12 Mach (sic) 2004 you advise that the loan facility of $3M had been renewed to 8^th May 2004. We will need to review the loan agreements and gain credit ratings and confirmations from the borrower. One issue is that we may consider, at this time, the asset to be of doubtful value, or to be a non current asset”.
On 7 August 2004 another letter to similar effect of the “Direction Letters” referred to in [36] above, signed by the appellant and Mr Roberts, was sent to Mr Ian Prider. By letter of 7 September 2004 Mr Prider responded as follows:
“I have not nor has my client received any letter from you dated 8^th February 2004. Assuming you are referring to correspondence that was exchanged in January/February you should refer back to that correspondence.
I do not propose to continue with this nonsense. The issues have been fully addressed in previous correspondence. In the event any shares are restricted Zenith will commence action for an administrator to be appointed to Chameleon Mining NL”.
As a result of a newspaper article about the Company, in September 2004 the ASX had written and oral communications with the appellant in the course of which the appellant stated that the Company had $3,000,000 on deposit with two overseas parties. Being dissatisfied with the information it received from the Company, the ASX on 27 September 2004 halted trading in the Company’s shares. The halt was still operative at the time that the Company’s Annual Report for the financial year 30 June 2004 (the “Annual Report”) was transmitted to the ASX on 30 October 2004. Again the signature of the appellant appearing on the Report was copied from another document that he had signed. The Report was accordingly not signed by him. Again there was also no evidence of the appellant’s involvement in the preparation or lodgement of the Report.
On or about 29 October 2004 the appellant signed a standard form management letter directed to Mr Jackson. This was expressed to relate to Mr Jackson’s “audit of the financial report of Chameleon Mining NL for the year ended 30 June 2004”. There was however no evidence to which this Court’s attention was drawn of the appellant seeing a copy of the final form, or even a draft, of the financial report contained in the Annual Report lodged with the ASX on 30 October 2004.
The parts of the Annual Report, rendered relevant by the particulars set out in [4] above of the charges against the appellant, were as follows:
(a)After referring to a proposed project in Fiji, the Chairman’s Report stated the following:
“The Zenith Group was requested and offered financial assistance for this purpose. Funds of $3 million plus a fee of $100,000 was agreed to be offset against a facility which Zenith would obtain, up to a sum of $8.2 million, for the acquisition of the Cerro Negro Copper Mine.
…
In September 2004, the company became aware that an Australian company, Zenith Development Company (Australia) Pty Ltd had been placed into liquidation. As far as the directors are aware Zenith Development Company Ltd is not affected by the liquidation of Zenith Development Company (Australia) Pty Ltd.
However, the Directors have considered it prudent to provide fully for the Receivable, as some uncertainty does exist”.
(b)The Statements of Cash Flows forming part of the Financial Statements referred under the heading “Cash Flow from Investing Activities” to a “Short-Term Loan” of $3,000,000.
(c)In the Notes to the Financial Statements an item “Loan on Deposit” of $3,100,000 appears under the heading “Receivables” and the subheading “Current”. At the same place there however also appears a “Provision for Doubtful Debt” of $3,140,199. It is apparent that this provision largely relates to the “Loan on Deposit” as the other Current Receivable items are relatively small. This is confirmed by the comment in the Chairman’s Report quoted above.
(d)In the “Statements of Cash Flows for the year ended 30 June 2004”, “Proceeds from Issue of Shares” are shown as $6,795,469.
The Half Yearly Report Charge
This charge against the appellant alleged that certain matters were represented in the Half Yearly Report and that the appellant knew that these matters were “false or misleading in material particulars” (see [4] above). It was not contested that to sustain these allegations it was necessary for the Crown to prove, not simply that the appellant was aware of the lodgement of the Half Yearly Report, but that he was aware that it contained the specific statements that were the subject of the charge.
It is appropriate to make the following general observations before turning to the particulars of the charge against the appellant.
As pointed out earlier (see [37] above), there was no evidence that the appellant was involved in the preparation or lodgement of this Report. Nor was there any direct evidence of his knowledge of the contents of the Report.
For the reasons given below it was in my view nevertheless open to the jury to infer that the appellant was aware at the beginning of March 2004 that lodgement of the Report was imminent and was aware at the time of its lodgement that the Report contained a statement reflecting the terms of the two “Direction Letters” bearing the date 8 February 2004 that the appellant could be inferred to have signed on or about 12 March 2004. The purported effect of those letters was that the terms of loans totalling $3,000,000 to Zenith and ACN were extended for a period of three months at an interest rate of nine per cent per annum.
The communications to which reference has been made above (see [16] – [36]) give rise to the inference that the appellant was concerned about how the consideration for the share issues to Zenith and ACN would be treated in the Report. The communications show his involvement in attempts to deal with what he clearly perceived to be a problem (that is, the “$3 million hole” to which he referred in the letter of 17 February 2004: see [25] above). His signature of the “Direction Letters” immediately prior to the lodgement of the Report provides the basis for an inference that the letters were the means, or part of the means, of solving that problem and that the appellant knew that the effect of the letters would be, and did come to be, reflected in the Report.
However in my view the evidence did not prove that the appellant was aware that this would involve false or misleading representations being made to the ASX. In early March 2004 the consideration payable by Zenith and ACN for the issue of shares to them came to be treated as loans to them by the Company. This was the effect of the letter Mr Ian Prider wrote on 12 March 2004 on behalf of Zenith and ACN (see [35] above). That letter was written by Mr Prider at the request of Mr Grimaldi (Transcript pp 254-255). It was also the effect of the “Direction Letters” apparently signed by the appellant on or about 12 March 2004.
Reference in the Report to the loan back to Zenith and ACN of the consideration for the shares was not of itself misleading as the concept of a notional payment of the consideration and a loan of it back to Zenith and ACN represented what was, according to the only expert accounting evidence at the trial, an acceptable way of representing in accounting terms what had occurred (as to which, see further in [58] below).
Particular (i): funds set aside
This particular (see [4] above) referred to a statement in the Report that funds had been “set aside” in the form of a Term Loan Receivable and alleged that in fact the Company “had no such funds set aside”. Zenith and ACN had adamantly asserted that they were not obliged to pay any money to the Company because they were entitled to set-off the Company’s obligation as guarantor under the Option against their obligations to pay the consideration for the share issues (and, implicitly, any loan debts into which these obligations may have been transformed). In these circumstances it was misleading for the Company to say, without disclosing Zenith and ACN’s assertions, that it had the funds “set aside”.
However there was in my view no proper basis for an inference to be drawn by the jury that the appellant knew at the time of the Report’s submission to the ASX that it contained a statement in the terms particularised. As I have said earlier, there was a basis for the jury to draw an inference that the appellant knew that the Report referred to $3,000,000 being lent to Zenith and ACN. Reference to that was not of itself false or misleading as it represented the fact that the share price due to the Company had been converted into loans. What was misleading was a reference to the loans (or to the obligation, from which the loans had been transformed, to pay the consideration for the share issues) without reference to the set-off claimed by Zenith and ACN. That set-off claim gave rise to real doubt about the worth of the obligations to repay the loans made by the Company.
The Crown was not able to prove that the appellant knew that the Report did not refer to the set-off claim and instead referred only to the loans. It did not therefore prove an essential element of this particular, namely, that a representation that was false or misleading was made to the ASX with the appellant’s knowledge.
Particular (ii): payment of cash for shares
This particular (see [4] above) alleged that the Financial Statements forming part of the Report represented that the Company had received $3,242,565 “in cash” from the share issue. Although the words “in cash” did not appear in the Financial Statements in relation to this receipt (see [38(b)] above), the item was one in a cash flow and the receipt would have been understood by a reasonable reader of the Financial Statements to be a “cash” receipt.
It is important however to consider what is meant by “cash” in this context.
It is clear that the share issues were not paid for by Zenith and ACN in bank notes or by any transfer of money to the Company’s bank account. However the Crown did not contend that payment by one of those methods was necessary to constitute compliance with the ASX Listing Requirements, nor was that suggested by the officer of the ASX who was called by the Crown to give evidence about those Requirements and other matters. No copy of the Requirements was in evidence.
In address at the trial, the Crown referred to a necessity under the Listing Requirements for the Company “to have $3.2 million readily available to it” (Transcript p 590). Consistently with this, the Crown referred in its Written Submissions on appeal (at [18]) to “an asset requirement of $3.2 million in cash (or a form readily convertible to cash)”.
The evidence of Mr Jackson, which was the only evidence at the trial that could be regarded as expert accounting evidence on this topic, was that a “constructive movement” of funds involving the conversion of debts in respect of the consideration for the share issues into debts in respect of short term loans by the Company to Zenith and ACN was a “standard situation” (Transcript p 448). On the assumption (which Mr Jackson indicated that he believed to represent the true state of affairs at the time of lodgement of the Half Yearly Report) that the Company could readily recover the loan debts from Zenith and ACN, he considered that the Company had complied with all relevant ASX requirements notwithstanding that there had only been a constructive, and not an actual, transfer of money in payment of the share consideration.
In light of this evidence I do not consider that the inclusion of the $3,000,000 consideration for the share issues to Zenith and ACN in the Condensed Statement of Cash Flows (see [38(b)] above) of itself gave rise to a false or misleading representation. In the absence of conflict with any statutory provision or any other principle of law, this is an area in which it is in my view appropriate for the Court to be guided by “the conceptions of business and the principles and practices of commercial accountancy” as reflected in Mr Jackson’s evidence (see The Commissioner of Taxes (South Australia) v The Executor Trustee Agency Co of South Australia Ltd [1938] HCA 69; (1938) 63 CLR 108 at 153 per Dixon J; The State of South Australia v The Commonwealth of Australia [1992] HCA 7; (1991-1992) 174 CLR 235 at 252).
Even if it did, it could not, in light of Mr Jackson’s evidence sanctioning the treatment of the debt for the share consideration being converted into a loan debt properly be inferred that the appellant knew that reference to the $3,000,000 in this way in the Half Yearly Report was false or misleading. This conclusion is consistent with the terms of the second paragraph of the appellant’s letter dated 12 February that is quoted in [26] above. That paragraph suggests that the appellant considered that the shares that were allotted to Zenith and ACN had been “issued for cash” on the basis that, although money had not changed hands, those companies “had the capacity to pay for the shares”.
There was accordingly no evidence upon which the jury could have found particular (ii) to have been established.
Particular (iii): debt fully recoverable
This particular concerned a statement in the Independent Review Report contained in the Half Yearly Report that “there was a debt of $3,000,000 owing to the [Company] and that it was fully recoverable” (see [4] above). Whilst there was a basis in the evidence for the jury to infer that the appellant knew at the time of its lodgement that the Report stated that there was debt of $3,000,000 owing to the Company (by Zenith and ACN) (see [47] above), there was no basis for inferring that the appellant knew that the Report stated that the debt was “fully recoverable” and did not disclose the claims by Zenith and ACN that, as a result of a set-off to which Zenith and ACN claimed to be entitled, no money was owing to the Company. The permissible inferences about the appellant’s knowledge of the contents of the Report are in my view limited to those described in [47] – [48] above. Any broader inferences could in my view only be based upon suspicion or speculation. This would be impermissible.
Conclusion as to Half Yearly Report
On the evidence before it, it was not open to the jury to conclude that, at the time the Half Yearly Report was lodged with the ASX, the appellant knew that the Report made any of the three false or misleading representations the Crown particularised in respect of it. Accordingly the conviction on the charge relating to the Half Yearly Report must be quashed.
The Annual Report Charge
As in the case of the Half Yearly Report, the appellant did not sign the Annual Report and there was no evidence of any involvement on his part in its preparation or lodgement. Nor was there any direct evidence of his knowledge of the contents of the Report. Accordingly knowledge of the appellant that it contained the particularised false and misleading statements needed to be proved by inference.
Particular (i): loan to Zenith
This particular (see [4] above) alleged that the Annual Report represented that the Company had loaned $3,100,000 to Zenith and “that a similar amount was ‘agreed to be offset against a facility that Zenith would obtain …’, whereas in fact the [Company] had not loaned any moneys to Zenith”.
The first point to note about this particular is that the latter part of the impugned representation (concerned with the agreement for an “offset”) was not alleged to be false or misleading. It can accordingly be disregarded.
Secondly the particular referred to a loan to Zenith of $3,100,000. The text of the Annual Report (at p 8) however refers to the “Zenith Group” in this context and to a loan of $3,000,000 to the Zenith Group. The Report was accordingly consistent with the facts indicated by the evidence, that is, that Zenith and its related company, ACN, were borrowers of $3,000,000 (rather than the $3,100,000 identified in the particular) from the Company.
Thirdly for the reasons given in [52] above, a statement in the Annual Report that there was a loan by the Company to the Zenith Group of $3,000,000 was not of itself false or misleading. As already noted, it was false or misleading to state that fact without also disclosing the borrowers’ dispute of their liability to repay the loan. However, this particular does not allege that the representation was false or misleading because it failed to disclose that Zenith and ACN disputed the loan debt. In any event, as in the case of the Half Yearly Report (see [62] above), there was no evidence, or proper basis for an inference, that the appellant knew that the Annual Report contained a reference to the loan to the Zenith Group without also a reference to the fact that Zenith and ACN disputed the obligation to repay it.
Particulars (ii) and (iii): short term loan/loan on deposit

These particulars referred to statements in the Annual Report that the Company had a “short term loan” of $3,000,000 or a “loan on deposit” of $3,100,000. The representations were alleged to be false or misleading because that there was no such short term loan and no such loan on deposit. The reasoning and conclusion in relation to particular (i) at [67] – [68] above apply equally to these particulars.
In addition, the absence of reference in the Annual Report to the claim of Zenith and ACN to a set-off could not be regarded as rendering the Report false or misleading in a material respect in circumstances where the Financial Statements forming part of the Report made full provision against the loan on the basis that it was a doubtful debt (see [43(c)] above). In substance the loan debt was written off and not treated as a valuable asset.
Particular (iv): issue of shares for cash
This particular alleged that the Annual Report falsely or misleadingly represented that Zenith and ACN had paid the Company $3,000,000 in cash for the shares issued to them. As in relation to the representation impugned in particular (ii) relating to the Half Yearly Report, the relevant accounting entry indicating receipt of consideration for the issue of shares did not use the words “in cash” but was contained in a Statement of Cash Flows (see [43(d)] above). The reasoning and conclusion in relation to that particular (see [54] - [61] above) apply equally to this particular.
Conclusion as to Annual Report Charge
For these reasons, the evidence before the jury did not provide a proper basis for concluding that any of the particulars of this charge had been established. As a result the appellant’s conviction on this charge also must be quashed.
The purported Minute of 12 February 2004
A further basis upon which the appellant contended that his conviction on both counts should be quashed related to a purported minute of a directors’ meeting of 12 February 2004 (the “Minute”) which was tendered by the Crown. There were two copies of the Minute in evidence. They were admitted at the trial as Exhibits 87 and 87A. The Minute purported to be a record of a meeting of directors of the Company held on 12 February 2004 at which the appellant and other directors were present. It said that “Mr Roberts tabled a draft of the Half Yearly Financial Statements for the Company to 31 December 2003” and referred to the tabling of letters of 8 February 2004 to Zenith and ACN “confirming the granting of a further 3 month period until 8^th May, 2004, at an interest rate of 9%”.
The form of signature of Mr Dondas, which appeared at the conclusion of each copy of the Minute in association with the word “Chairman”, was proved to have been placed on each copy electronically. In the absence of proof of any authority given by Mr Dondas for this to occur, the signature did not represent a confirmation by Mr Dondas of the accuracy of the document. In oral evidence Mr Dondas indicated that he did not have any independent recollection of the meeting. Mr Roberts, who was the Company Secretary and whom the Minute indicated was present at the meeting, was not called to give evidence at the trial.
During argument in the absence of the jury as to the admissibility of the Minute, the Crown Prosecutor stated that he was not tendering the Minute to prove the truth of its contents but only as evidence of the fact that the person who prepared the document made the assertions contained in it. This led the trial judge to conclude as follows:
“Now, the Crown does not seek to establish by tendering this document, that Mr Roberts in fact tabled the letter [that is, the letters of 8 February 2004] on that date but rather the fact that the Minute, or a document that purports to be the Chameleon Mining NL [Minutes of a directors’ meeting] held on 12 February, contains that statement, true or false, and in those circumstances I am prepared to admit the document”.
Upon counsel for the appellant seeking clarification as to whether the ruling applied equally to that part of the Minute that referred to the tabling at the meeting of the draft Half Yearly Financial Statements, the Crown Prosecutor said that he did not in any respect rely upon the document to prove the truth of what was asserted in it. In response to a request from counsel for the appellant that the trial judge therefore direct the jury that the Minute was in evidence on a limited basis, the judge said that he was “quite happy to do that in any event” (Transcript p 371). Despite counsel for the appellant repeating on a number of subsequent occasions during the trial his request for such a direction, the judge did not at any time give such a direction to the jury. This was so despite the Crown Prosecutor in his address relying on the document to some extent as evidence of the truth of its contents.
In my view the appellant’s position was unfairly prejudiced in a significant respect by what occurred at the trial in relation to the Minute.
The Crown’s primary purpose in tendering the Minute appears to have been to assist the Crown in proving that on or about 12 March 2004 officers of the Company, with the appellant’s participation or knowledge, brought into existence backdated letters, purporting to be letters of 8 February 2004, for the purpose of overcoming a problem concerning the way in which the $3,000,000 share issue consideration was to be dealt with in the Half Yearly Report (see [24] – [36] above). Use for this purpose would not have involved the Crown relying upon the Minute as evidence that the letters of 8 February 2004 were in fact placed before a Board Meeting of 12 February 2004. On the contrary, the Crown asserted that this aspect of the Minute was false and evidenced an attempt in March to create a false record of what had occurred in February.
The reference in the Minute to the tabling of the Half Yearly Financial Statements was however in a different position. It was an important part of the Crown’s case on the first count to prove that the appellant was aware of the inclusion in the Half Yearly Report of the representations that had been particularised in the charge. There being no evidence that the appellant signed the Report or was involved in its preparation or lodgement, the Crown had to rely upon inference to prove that the appellant had knowledge of the contents of the Report. In light of the fact that the Minute recorded the appellant as being present at the meeting, the statement in the Minute that a draft of the main part of the Report (that is, the Half Yearly Financial Statements) was tabled could well have been regarded by the jury as significant evidence supporting this aspect of the Crown case. Such use would have been inconsistent with the basis, of which the jury was unaware, upon which the judge admitted the Minute into evidence.
The reference in the Minute to the tabling of the Half Yearly Financial Statements should not have been admitted into evidence at the trial because, unlike the references in the Minute to the letters of 8 February 2004, it had no relevance if it were treated simply as an assertion, and not as evidence of the fact, that those financial statements were tabled at the meeting. That reference should accordingly have been blanked out of the document before the Minute was tendered. At the very least the trial judge should have given to the jury a firm direction as to the limited purpose for which the Minute could be used.
As I consider that there is a real chance that the jury misused the reference in the Minute to the Half Yearly Financial Statements being tabled at a meeting on 12 February 2004 to conclude that the appellant knew of the relevant contents of the Half Yearly Report, the appellant’s conviction on the first count should be quashed. This basis for quashing that conviction is additional to that which I gave in [62] above. I would also quash the conviction on the second count on this basis because there is a significant risk that having wrongly used the Minute to conclude that the appellant was aware of the particularised contents of the Half Yearly Report, the jury may have reasoned that it was probable that he was aware of the inclusion of statements to similar effect in the Annual Report. In light of the limited basis upon which the Minute was admitted into evidence, such a chain of reasoning would have been unfairly prejudicial to the appellant.
Orders
The evidence at the trial did not provide a foundation for the conviction of the appellant on either count. As there are no circumstances which would warrant the ordering of a new trial, I propose the following orders:
(1)Grant leave to appeal in respect of the appellant’s contention that a purported directors’ minute of 12 February 2004 was wrongly admitted into evidence at the trial;
(2)In respect of both counts upon which the appellant was convicted, allow the appeal and quash the conviction; and
(3)On both counts direct that a judgment and verdict of acquittal be entered.
HIDDEN J: I agree with Macfarlan JA.
JOHNSON J: I agree with Macfarlan JA.
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1 July 2010