Director of Public Prosecutions (Cth) v Morris; Director of Public Prosecutions (Cth) v Rae

[2010] VSCA 149

SUPREME COURT OF VICTORIA

COURT OF APPEAL

DIRECTOR OF PUBLIC PROSECUTIONS FOR THE COMMONWEALTH	No S APCR  0637 OF 2009
	v
CHARLES NICHOLAS MORRIS
and
DIRECTOR OF PUBLIC PROSECUTIONS FOR THE COMMONWEALTH	No S APCR  0638 OF 2009
	v
JEFFREY REGAN RAE

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JUDGES:	BUCHANAN and WEINBERG JJA and COGHLAN AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	24 November 2009
DATE OF JUDGMENT:	25 June 2010
MEDIUM NEUTRAL CITATION:	[2010] VSCA  149
JUDGMENT APPEALED FROM:	R v Morris & Rae (Unreported, County Court Of Victoria, Judge Gaynor, 21 April 2009)

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CRIMINAL LAW – Director’s Appeal – Breaches of s 184(1) of the Corporations Act 2001 (Cth) – Recklessly failed, as a director, to exercise powers and discharge duties in good faith, in the best interests of the company – Whether sentences imposed pursuant to s 19B of the Crimes Act 1914 (Cth) were manifestly inadequate – Discretion of an appellate court to intervene in sentence imposed below – Appeal dismissed.

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APPEARANCES:	COUNSEL	SOLICITORS
For the Appellant:	Mr D Gurvich	Solicitor for the Commonwealth Director of Public Prosecutions
For the Respondent Morris:	Mr R Richter QC with Ms M Fox	Minter Ellison
For the Respondent Rae:	Mr B Bourke with Mr G Casement	Bullards

BUCHANAN JA:

1. I agree with Coghlan AJA.

WEINBERG JA:

1. I agree with the reasons for judgement given by Coghlan AJA.

COGHLAN AJA:

1. This is an appeal brought by the Commonwealth Director of Public Prosecutions against sentencing orders made on 21 April 2009, by Judge Gaynor. in the County Court at Melbourne.

1. The respondents had each pleaded guilty to having recklessly failed as a director of ACIL Tasman Pty Ltd (‘ACIL’) to exercise powers and discharge duties in good faith, in the best interests of that company, contrary to s 184(1) of the Corporations Act 2001 (Cth). They were each discharged, pursuant to s 19B of the Crimes Act 1914 (Cth) without conviction, upon entering into a recognizance in the sum of $5,000 to be of good behaviour for two years.

1. The maximum penalty for the offence under s 184(1) is a term of five years’ imprisonment.

1. By notice dated 12 May 2009, the Commonwealth Director appealed against the sentence imposed on each respondent.  The sole ground of appeal in each case is that the orders made were ‘manifestly inadequate’.

1. The particulars provided in support of that ground were as follows:

In imposing the sentence, the learned sentencing Judge:

a)        failed to give sufficient weight to the seriousness of the offence;

b)        failed to give sufficient weight to the principle of general deterrence;

c)        failed to give sufficient weight to the aggravating features;

d)        gave too much weight to evidence of prior good character;

e)failed to properly apply the two-stage test required by s 19B(1)(b) of the Crimes Act 1914 (Cth); and

f)failed to properly exercise her discretion under s 19B(1)(b) of the Crimes Act 1914 (Cth).

1. The circumstances surrounding the offences may be briefly stated.  The respondents were both directors of ACIL, a company engaged in economic forecasting. 

1. A major, if not the principal, competitor of ACIL was a company known as Access Economics Pty Ltd (‘AE’).  One of the employees of AE was Jeremy Rothfield, who had worked for that company until approximately October 2003.  He subsequently commenced employment with ACIL.  Mr Rothfield retained access to the data and email system of AE, and used his knowledge, and that access, to ‘hack’ into computers at AE.  He obtained a large quantity of confidential material.  He forwarded a number of documents, including emails, to each of the respondents, a somewhat greater number to the respondent, Rae.  Both respondents knew that they should not have these documents, and were aware, to some degree, of the nefarious means by which they had been obtained.

1. Mr Rothfield also distributed some of AE’s material to others and, as a result, his actions became known.  The material received and held by each of the respondents was traced back to them.

1. Both Mr Rothfield and ACIL were found in possession of a large number of documents belonging to AE, including emails, tenders, spreadsheets and Powerpoint presentations.  There was evidence that both respondents communicated with Mr Rothfield by email with regard to the AE documents.  Much of the AE material was commercially sensitive.

1. It was accepted on the plea that only limited use had been made of the material.  It was not suggested that it had been used, directly, to gain any illegitimate commercial advantage for ACIL over AE.  However, some parts of the material had been copied into ACIL’s own tender documents.

1. The direct and immediate consequence of the discovery that the respondents had come into possession of AE’s material was that AE brought proceedings against ACIL in the Supreme Court.  That action was ultimately settled on confidential terms on 1 February 2006.

1. On 9 October 2005, the respondent Rae was charged on summons with an aggravated  version of this offence.  Instead of alleging that he had been ‘reckless’, it was alleged that he had been ‘intentionally dishonest’.  The respondent Morris was similarly charged on 11 October 2005.

1. Following a contested committal, both respondents were committed for trial in the County Court.   On 20 June 2006, the respondent Morris offered to plead guilty to the charge of recklessly failing to exercise his powers in good faith in the best interests of the company.  He renewed that offer before the indictment was filed in the County Court in February 2007.

1. The trial, which was originally listed to commence on 1 May 2008, however, it did not proceed on that date.  On 30 May 2008, the Commonwealth Director accepted an offer from the respondent Morris to plead guilty to a rolled up count of conduct contrary to sub-ss 184(1)(a) and (c) of the Corporations Act 2001 (Cth). Morris also indicated his willingness to give evidence against the respondent Rae. On the following day, Rae also offered to plead guilty to the count as ultimately framed.

1. On 2 July 2008, both respondents pleaded guilty to the indictment as filed.  The plea was adjourned to 23 October 2008, and ultimately proceeded on 9 February 2009.

1. It is important to note that each respondent was dealt with on the basis that he had been reckless in his failure to act in good faith in the best interests of ACIL.  The counts to which they pleaded guilty did not embody any element of wrongdoing to any entity other than ACIL.  In particular, it was not part of the Crown case that, by their conduct, they had caused loss or damage to, or otherwise harmed, AE.

1. The Crown submitted on the plea, and also before this Court, that, by their conduct, the respondents had exposed ACIL to a number of risks.  These included the risk of being sued (as ACIL indeed was), the risk of damage to the company’s reputation, and the risk that it might suffer a loss of business.  It was noted that, as a result of what the respondents had done, the company had, in fact, been suspended from the list of preferred suppliers to the National Occupational Health and Safety Commission.

1. When the respondents were charged with these offences, they immediately resigned as directors.  In addition, they ultimately disposed of their shareholdings in the company on disadvantageous terms.

1. It was submitted on behalf of the Crown in argument before this Court that the loss to ACIL of both respondents’ experience was a further detriment to the company for which they were liable.  Sensibly, that submission was not pressed.

1. The plea material produced on behalf of each respondent was impressive.  They continued to have the support of their families and friends.  The financial consequences of their departure from ACIL had been dire for each respondent and they had had difficulty in re-establishing their careers.  Morris, who had been a founder, and was a 40 per cent shareholder of ACIL, suffered particularly severely in that regard.

1. It was common ground on the plea that there had been no long term financial consequences for ACIL.  The company had thrived, even after the commission of these offences.

1. On the plea, counsel on behalf of Rae submitted that the appropriate disposition in his client’s case was an order for discharge without proceeding to conviction pursuant to s 19B of the Crimes Act 1914 (Cth). That was in the face of a submission by the Crown that the only appropriate disposition was a term of imprisonment, albeit suspended.

1. Counsel for Rae approached the plea in a somewhat pragmatic manner. Far from accepting that his client had behaved culpably, he essentially submitted that the plea of guilty had been proffered to avoid the stress and expense of a trial.   He reminded the judge that there was no evidence of any damage whatsoever having been done to AE, and submitted that the same was true in relation to ACIL.  He called a number of character witnesses on the plea.

1. Senior Counsel, who appeared on behalf of Morris, emphasised the lack of any actual or ongoing damage done to ACIL.  He took her Honour through a number of documents which he submitted showed his client’s relatively minor involvement.  He also called a number of character witnesses on the plea and sought a non-conviction disposition for his client.

1. In his reply, Senior Counsel who appeared for the Crown, sought to emphasise the seriousness of the offending. He submitted that not only was a conviction appropriate, but that there should also be, in each case, a sentence of imprisonment imposed. He did not at any time deal with, or address, the technical requirements of s 19B. He did not submit that it would not be open to her Honour to invoke that section because the requirements of the section had not been met.

1. When her Honour came to sentence the respondents, she did not advert to the provisions of the section dealing with these matters, nor did she engage in the two stage process required under s 19B. She did not set out the basis upon which she formed the view that it would be inexpedient to inflict any punishment, whether that be by reason of the character or antecedents of the respondents, or the extent, if any, to which she regarded the offence as trivial, or the extent, if any, to which she regarded the offence as having been committed under extenuating circumstances.

1. Since her Honour’s failure to go through the ‘two-stage test’ required by s 19B is relied upon by the Crown only as a ‘particular’ of the sole ground of appeal, namely manifest inadequacy, any error of that kind, assuming it were made, would not operate, on its own, to vitiate the sentences.

1. Before this Court, it was submitted on behalf of the Director that a non-conviction disposition was entirely outside the range of available sentences.  It was submitted that ‘white collar’ crime needed to be dealt with in such a way that the seriousness of the offending was brought home to the offenders, and to others who might be minded to act in that way.  In that regard, it was submitted that her Honour had failed to give sufficient weight to the principle of general deterrence.  It was submitted that the seriousness with which conduct of this character should be viewed was reflected in the fact that the offence carried a maximum term of five years’ imprisonment, one of the highest penalties available under the Corporations Act 2001 (Cth).

1. The respondents essentially relied upon the same submissions as had been advanced below. 

1. In my opinion, this is a somewhat unusual case.  The sentencing judge commented upon the fact that the Crown could not point to any previous instance in which directors of a company had been prosecuted under the Corporations Act2001 (Cth) for acting in what many would regard as the best interests of that company, by receiving sensitive information about a competitor from a disgruntled former employee. That is not to say that such conduct should be viewed commendably. It does seem somewhat odd, however, to characterise what the respondents did in this case as constituting a breach of their duty to their own company. The application of the fault element of ‘recklessness’ to conduct of this kind seems somewhat illusory. It certainly warrants placing the respondents’ conduct at the lower end of the range for this offence.

1. In the final analysis, the Director submitted that, even if this Court were not persuaded that a sentence of imprisonment was appropriate, the appeal should nonetheless succeed to the extent that the non-conviction disposition was set aside, and replaced by a ‘conviction’ bond.  That submission reflected an acceptance by the Director of the operation of the principles of double jeopardy on an appeal by the Director of Public Prosecutions.

1. In all the circumstances, I would regard the substitution of a conviction ‘bond’ for a non-conviction disposition as nothing more than tinkering. I accept that breaches of s 184, and the other provisions in the Corporations Act 2001 (Cth) dealing with director’s duties, will ordinarily attract (at least) a conviction. Some judges may well have imposed a conviction in this case.

1. It is well established, however, that this Court has a discretion as to whether or not to intervene on a Crown appeal.  In the circumstances of this case, I would exercise that discretion in favour of the respondents.  I would therefore dismiss the appeal.

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