Hosken, Robert William v Australian Securities Commission
[1999] TASSC 26
•15 March 1999
[1999] TASSC 26
PARTIES: HOSKEN, Robert William
v
AUSTRALIAN SECURITIES COMMISSION
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: APPELLATE
FILE NO/S: LCA 55/1998
DELIVERED: 15 March 1999
HEARING DATE/S: 22, 23 and 24 September 1998
JUDGMENT OF: Slicer J
CATCHWORDS:
Appeal and New Trial - Appeal - General principles - Interference with judge's findings of fact - Functions of appellate court - Where inferences of fact involved.
Companies (Tasmania) Code 1982, s229(4).
Devries and Another v Australian National Railways Commission and Another (1992 - 1993) 177 CLR 472; State Rail Authority of New South Wales v Earthline Constructions Pty Limited (In Liquidation) (1999) 2 Leg Rep 2, applied.
Aust Dig Appeal and New Trial [21]
REPRESENTATION:
Counsel:
Applicant: B D Bongiorno QC and P A Griffits
Respondent: A M Blow QC
Solicitors:
Applicant: Griffits and Jackson
Respondent: Commonwealth Director of Public Prosecutions
Judgment category classification:
Judgment ID Number: [1999] TASSC 26
Number of pages: 17
Serial No 26/1999
File No LCA 55/1998
ROBERT WILLIAM HOSKEN v AUSTRALIAN SECURITIES COMMISION
REASONS FOR JUDGMENT SLICER J
15 March 1999
The applicant was convicted of 372 offences, contrary to the Companies (Tasmania) Code ("the Code"), s556(1), and six offences, contrary to the Code, s229(4). He seeks review of the penalty imposed in relation to the former offences and the convictions imposed in relation to the latter. The applicant was the co-director of a company, Launceston International Hotels Pty Ltd ("the Company") (known at the time of commencement of proceedings as AH No 2 Pty Ltd), which was concerned with the construction and operation of an hotel complex. The offences occurred between 8 March and 19 September 1989, when the directors caused the Company to incur debts with twenty-three businesses at a time when there were reasonable grounds to expect that the Company would not be able to pay all its debts as and when they became due. The circumstances surrounding these offences are comprehensively stated in the reasons for decision of the learned magistrate; no challenge is made to their general accuracy, and, accordingly, it is not necessary to re-state them. The loss to creditors was in excess of $330,000.
The review of the penalty imposed in relation to the offences contrary to the Code, s556(1), will be dealt with in a separate judgment.
The convictions recorded in relation to the offences contrary to the Code, s229(4), arose out of the transfer of funds from the Company to the applicant, his wife, other corporate entities owned or controlled by him, and two firms of solicitors, such payments being made at a time when the transfer of moneys was likely to (and did) cause harm to the interests of the Company. It is the findings in relation to those transfers which are challenged.
Appeal against conviction
A principal creditor of Launceston International Hotels was Partnership Pacific Pty Ltd, a merchant bank subsidiary of the Westpac Bank Banking Corporation, whose moneys were secured by means of complex contractual arrangements made between a number of corporate entities. These agreements were amended from time to time.
In September 1989, Partnership Pacific Pty Ltd decided to exercise powers afforded by the agreements and take over the management of the business in order to protect its own interests. Before any power afforded by deed or statute was exercised, negotiations took place between the applicant and other parties, principally Partnership Pacific, in relation to a transfer of control. Central to the issue of culpability of the applicant was whether he did not resist that foreshadowed exercise of power because Partnership Pacific Pty Ltd had agreed to accept responsibility for all trade creditors, and that therefore there was no detriment caused by the transfer of moneys from the Company.
The charges upon which the applicant was convicted were that:
1On 14 September 1989, the applicant, by improper use of his position as a director, gained an advantage or caused detriment to the Company by advancing himself the sum of $2,000.
2On 18 September 1989, the applicant, by improper use of his position as a director, gained for himself advantage or caused detriment to the Company by advancing to himself the sum of $36,000.
3On 19 September 1989, the applicant, by improper use of his position as a director, gained for himself or Heather Hosken an advantage or caused detriment to the Company by advancing to Heather Hosken the sum of $30,000.
4On 29 September 1989, the applicant, by improper use of his position as a director, gained an advantage to Barrington Investments Pty Ltd (a company owned and controlled by himself) or caused detriment to the Company by advancing to Barrington Investments, the sum of $22,926.50.
5On 24 January 1990, the applicant, by improper use of his position as a director, gained for himself, Barrington Investments, Hosken Investments Pty Ltd, and Hosken International Pty Ltd (all entities owned and controlled by himself) or caused detriment to the Company by advancing to the legal firm Douglas and Collins, the sum of $8,000 for the payment of costs due by himself and those entities.
6On 24 January 1990, the applicant, by improper use of his position as a director, gained for himself and the Company, or caused a detriment to the Company by advancing to the legal firm Minter Ellison the sum of $14,996 for the payment of costs due by himself and the Company.
The applicant concedes the validity of the conviction in relation to the first charge. The applicant's case in relation to the remaining charges is that in September 1989, following negotiations with Partnership Pacific and the Hosken interests, the merchant bank agreed to take over the hotel operation and pay the trade creditors. If such was the case, there was no improper use of position since the creditors of the Company would be paid by the bank, and, as the learned magistrate stated in his reasons for decision at 5:
"… it would not be a preferential payment to creditors Douglas & Collins and Minter Ellison to pay them, and it would not be a detriment to the company or a benefit to Mr Hosken or Mrs Hosken, as the case may be, depending on the count in question, if the company was not liable to pay creditors. The only other persons with a call on the assets of the company would be shareholders and the defendants were the only shareholders."
The Code, s229(4) (now the Corporations Law, s232(6), and formerly the Companies Act 1962, s124), provided at the relevant time:
"An officer or employee of a corporation shall not make improper use of his position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation."
The section required proof that the officer had the purpose of gaining an advantage or of causing detriment. As Mason CJ, Brennan, Gaudron and McHugh JJ said in their joint judgment in Chew v R (1991 - 1992) 173 CLR 626 at 633 - 634:
"Once one concludes that there is a purposive element in the offence, it is necessary to establish not merely that the accused intended that a result should ensue, but also that the accused believed that the intended result would be an advantage for himself or herself or for some other person or a detriment to the corporation.
The accused's state of mind is relevant not only to the requirement of purpose but also to the element of improper use of his or her position. If, for example, an accused person reasonably but mistakenly believed that a particular transaction which he or she authorized was genuinely for the benefit of the corporation, that belief may, in an appropriate case, be material in determining whether the accused person can be held criminally responsible for using his or her position in a manner which would objectively be seen to be improper."
(See also R v Durovic B32/1992, Australian Securities Commission v Schreuder A79/1994).
A belief that the bank would pay the creditors would have relieved the applicant of culpability. The findings of the learned magistrate were that there was never an agreement for the bank to pay trade creditors, and that the applicant never believed such to be the case. He found thus, in part, because he did not accept the applicant to be a credible witness, a conclusion which is not challenged. This appeal is in no way dependent upon a critique of the learned magistrate's assessment of the evidence of the applicant. But rejection of that evidence did not necessarily resolve the issue. The applicant was not present at a meeting held in Sydney on 18 September 1989, at which it was said the agreement had been reached. The notice to review claims error in fact and law in the findings that:
"1 …
(i)there was no agreement for Westpac or associated entities to pay trade creditors of AH No. 2 Pty Ltd other than a category of essential creditors;
(ii)the Applicant never believed after the negotiation between Mr Richard Earl and Mr Peter Alexander on the 17th day of September 1989 that Westpac or its associated entities had agreed to pay the ordinary creditors of AH No. 2 Pty Ltd from the funds of Westpac or its associated entities or from any profit which may have arisen from the sale of the Hosken properties;
when
(a)Mr Earl had given evidence that he had negotiated such an agreement with the Westpac Bank and Associated entities through Mr Peter Alexander on the 17th of September 1989;
(b)Mr Earl had given evidence that he had no doubt that the Applicant understood that that was the arrangement negotiated;
(c) the learned Magistrate did not reject Mr Earl's evidence;
(d) both findings were against the weight of the evidence."
The basis upon which this appeal is to be determined is in accordance with that adopted by the High Court in State Rail Authority of New South Wales v Earthline Constructions Pty Limited (In Liquidation) (1999) 2 Leg Rep 2 (see also Devries and Another v Australian National Railways Commission and Another (1992 - 1993) 177 CLR 472).
In his reasons for decision, the magistrate set out the history of discussions and negotiations held in an attempt to maintain the viability of the hotel project, the injection of new moneys, protection of the lenders and the guarantors, and further financial arrangements to be made following the sale of other property of the applicant. Having rejected the account given by the applicant as to the existence of an agreement said to have been reached on 14 September, and the applicant's version of the subsequent events, the learned magistrate gave detailed consideration to the evidence given by Mr Richard Hedley Earl, a partner of Minter Ellison, the legal firm retained by the applicant, and Mr Peter Alexander, the senior manager of the corporate banking division of Westpac Banking Corporation, the owner of Partnership Pacific. The learned magistrate dealt with the issue of the events of 18 September and their aftermath in his reasons for decision at 22 - 24 in the following terms:
"I make the following comments:-
1Mr Earle's recollection was poor about what was actually said about the matter.
2His own state of mind was that the conclusion followed as a matter of necessity from the 'walk in, walk out' agreement, and from the taking over of the structure.
3In that state of mind he almost apologetically (it seems to me) raised the matter with Mr Alexander and received, at best, an incomplete response.
4It seems from the answer I have quoted concerning construction costs, that Mr Earle and Mr Alexander may have been alluding to construction costs about which there could of course have been no argument.
5He was referring to debts of LIPL, as presumably was Mr Alexander. This is because Mr Earle was not aware of LIHPL and its role, at that meeting. As I have said in point 4, there could hardly have been any argument about these costs, because construction costs as distinct from operating costs, were the responsibility of the trustee as the disclosed agent of LIPL or otherwise. Even if they were discussing operating costs, they were discussing it out of ignorance of the truth.
6Such agreement as Mr Hosken or Mr Earle may have believed was reached was based on inference and the possibility is real that they were not talking about the same thing as Mr Alexander.
7Mr Earle might more easily have arrived at an erroneous conclusion because of his underlying belief that it was not necessary to raise it in the first place.
8Both men appeared to accept their meeting was on 18th September. Mr Alexander would be right about it being a Monday if it was 18th September. I am not able to make a finding, but the Hotel was taken over on the Tuesday (19th) and I am satisfied the issue no longer appears to discredit Mr Alexander.
By contrast Mr Alexander's evidence was not entirely satisfactory either. He was so guarded at times, and so reluctant to answer questions asked as distinct perhaps from volunteering his version, that he appeared to border on being intentionally unhelpful at times. He appeared to be inclined to answer some questions based upon a reliance on a disagreement with some trivial or immaterial fact included in the question. That was the low point of his evidence. And I must say that now the relationship between the days and the dates is clear, this attitude of his no longer appears adverse to his credibility. He was plainly a very careful witness, who was unwilling to oversate his recollection. I conclude that he was an honest witness and he was not given to the construction of conclusions in the way I have illustrated of Mr Earle. He clearly denied any agreement with Mr Hosken for Westpac to pay creditors from its funds, and clearly denied that such an agreement was reached with Mr Earle.
I am left with a strong and confident impression that such an agreement was not only most unlikely to be made in the circumstances, but very unlikely to have been made on the evidence. The evidence for such an agreement is just unconvincing. The following are my reasons, and they deal as well with the possibility that Mr Hosken believed in the state of affairs which I conclude did not exist.
1Neither Mr Earle in writing, nor Mr Hosken in anyway ever suggested during previous opportunities to do so, that Westpac would pay creditors immediately from its own funds. I refer to Mr Hosken's failure to assert it to creditors, in his interviews with the ASC, in his affidavit of 7th May 1991 nor in Mr Griffit's submission to the ASC dated 18th September 1992. It is interesting to note that at pages 12-13 of that document it is submitted that the understanding set out in P243 represented the agreement, and no reference is made to the communications of the weekend following. This submission relies entirely on the concept of agency for the proposition that PPL was liable to creditors.
2No attempt by Westpac was made to collect debtors of LIHPL, and indeed payment of those collections which did occur were made to LIHPL's bank account by SPHC.
3Mr Alexander was in no position to agree to this proposition at any material time because he had to obtain the approval of the other parties once Mr Hosken and LIPL had given their consent. There is no evidence that they ever gave their consent in clear terms, but if it occurred, it could never have occurred before the weekend of 16th and 17th September. I do not overlook the reference in P242 to a discussion with Mr Rintoul.
4Mr Hosken said he asked Mr Earle to make sure that Westpac would pay creditors. This suggests the agreement had not been made with him already. Mr Alexander was sending in what I would call the 'take over troops' when Mr Earle arrived which rather suggests that the time for negotiation had passed.
5No reason is suggested for the alleged change between the defence version of what occurred over the weekend, and the P243 understanding, beyond the extent to which I have commented on this above. Mr Hosken's interests were served by offering this co-operation regardless of whether or not Westpac had agreed to pay creditors.
I conclude beyond reasonable doubt that there was no agreement for Westpac or associated entities to pay trade creditors beyond the possibility that they agreed to pay a category of essential creditors like the HEC (whom they were bound by guarantee to pay anyway), Telecom and others. I am satisfied that they neither agreed to pay any other creditors from their own funds, nor ultimately agreed to pay them from any profit which may have arisen from the sale of the Hosken properties. I am similarly satisfied that Mr Hosken never believed any such thing. I am satisfied that if he had, he would have said so to the ASC, he would have said so to creditors and he would have said so to Mr Michael Cooke. He would have included it in his affidavit and in his submission through Mr Griffits. He would have pursued the enforcement of such an agreement through Mr Earle."
A statement of Richard Hedley Earl, made in 1994, was tendered in evidence during his cross-examination and formed the basis of his oral evidence. The relevant portions of that statement are:
"5On or about 18 September 1989 I was contacted by Mr Robert Hosken by telephone, at a time when I was in Sydney attending a conference. Although I was aware as mentioned above that the hotel had encountered difficult trading conditions, I had not been in contact with Mr Hosken for some weeks prior to that telephone call. Mr Hosken told me that over the preceding days he had been in discussions with Partnership Pacific with a view to handing over complete ownership and operating control of the hotel to Partnership Pacific in exchange for a release from personal guarantees. Mr Hosken asked me if I would go immediately to the office of Mr Peter Alexander at Partnership Pacific in Sydney, so that suitable arrangements could be negotiated for this proposal to be brought to fruition. I remember that I was unable to go immediately to Mr Alexander's office as requested, but I arranged with Mr Hosken that I would attend as soon as possible and that I expected this to be in the late afternoon of that day.
6I was also aware at that time that Partnership Pacific had considerable difficulties of its own, because it was common knowledge that Partnership Pacific had gone through considerable management turmoil and reorganisation and that Westpac, its parent, had been forced to absorb the business of Partnership Pacific because of its difficulties. I was also aware that there had been a serious dispute between Partnership Pacific and Lloyds International concerning the Launceston hotel project, apparently based on alleged misrepresentations by Partnership Pacific to Lloyds International at the time when the transaction was arranged by Partnership Pacific, and that to settle this dispute Partnership Pacific had been forced to buy Lloyds International out of its involvement in the project.
7When I arrived at Mr Alexander's office, expecting to engage in negotiations with him on Mr Hosken's behalf, I was surprised to discover that the take out arrangement was effectively a fait accompli. I was initially shown into a meeting room in which were present Mr Alexander and at lest one other representative of Partnership Pacific, at least two people representing a hotel management company which I think was called Southern Pacific Corporation, and at least two people from one of the large chartered accounting firms which I think was Coopers & Lybrand.
8Mr Alexander explained to me that a take-over of the hotel on a going concern basis had been agreed with Mr Hosken and that most of the people in the room had to leave very shortly to catch the last available flight which connected to a flight to Launceston that evening, so as to take over the hotel operations with effect from the following morning. He asked that any discussion of the details of the arrangement with Mr Hosken should therefore be deferred while these people were given last minute instructions. Mr Alexander and others in the room asked me various questions concerning the best way in which they could take control of the operating structure of the hotel without prejudicing any possible future taxation benefits which might be available when the hotel was sold. Unfortunately, I was only able to make general comments because I had no papers with me and it had been some considerable time since I had any cause to review the finance package and the company structures which it involved.
9As none of us present in the room were able to be precise about the steps required to assume control in the most advantageous manner, it was expressly agreed that Mr Hosken and all persons associated with him would resign or otherwise do anything reasonably required by Partnership Pacific in order to effectively pass control of the whole ownership and operating structure relating to the hotel to Partnership Pacific or its nominees in whatever manner was considered to be most advantageous from the point of view of future realisation of the hotel. This discussion was premised on the clear understanding that Partnership Pacific was moving to take over complete responsibility for the hotel operation with immediate effect.
10The take-over of control by Partnership Pacific included taking over responsibility for trade creditors of the hotel. This was clear from the 'walk in, walk out' nature of the arrangement and was further clarified in discussions between Mr Alexander and me when he expressed concern that he had heard some suggestion that some of Mr Hosken's other companies [sic] liabilities may have become involved in the hotel operations and he stated that Partnership Pacific was not prepared to meet any liabilities of other unrelated Hosken entities. He used my legal charges to Mr Hosken as an example of a liability that he considered to be personal to the Hoskens and something which would not be treated as part of the hotel creditors. On at least one occasion I left the meeting room and made a telephone call to Mr Hosken and I recall explaining these matters to him over the telephone. I can recall Mr Hosken telling me that there were no personal or unrelated creditors on the hotel's books and he was therefore unconcerned by the caveat which Mr Alexander had expressed. I have no doubt that Mr Hosken understood that the arrangements negotiated with Mr Alexander would result in the hotel's ordinary trade creditors being paid as the hotel operations were continued under Partnership Pacific's control and that was certainly also my expectation.
11The settlement negotiated with Mr Alexander also involved the Hosken's handing over all major property and assets which they owned (and which for the most part were already mortgaged or charged to Partnership Pacific) other than their personal residence, in the expectation that these properties would be realised and the proceeds applied in reduction of the amounts owing to Partnership Pacific. The arrangement with Mr Alexander in Sydney was expressed to be conditional on the Hoskens having made full disclosure of their assets. Although Partnership Pacific's solicitors sought at one stage to suggest that full disclosure may not have occurred, I believe the Hoskens did satisfy this condition and the allegation of non-disclosure made by Partnership Pacific's solicitors was not seriously pursued as an excuse for avoiding the agreement reached with Mr Alexander.
12My discussion with Mr Alexander in Sydney proceeded on an amicable basis and when it concluded in the early evening, Mr Alexander asked me, as I was returning to Melbourne that night, if I would call on Partnership Pacific's solicitors in Melbourne, Messrs Mallesons, on the following morning to brief them fully as to the arrangement which had been reached, so that they could prepare appropriate documentation.
13At the time of my discussions with Mr Alexander in Sydney, I was under the impression that Partnership Pacific's willingness to takeover the hotel as a going concern, included taking responsibility of existing trade creditors, was a reflection of commercial realities in the context of a desire to realise the hotel to best advantage as a going concern. However, on the following day, as a result of my discussions with Partnership Pacific's solicitors in Melbourne, I realised that Partnership Pacific considered that it had an obligation to pay the trade creditors of the operating entity under the tax effective financing package, because that entity acted as agent for the property owning unit trust. I also formed the view that Mr Alexander's vague concerns about the possibility of creditors of unrelated Hosken entities appearing in the list of hotel creditors may have been somewhat disingenuous. By then, of course, the agreement had been implemented and partly performed by both parties, in the sense that the Hoskens had given up control of the hotel's management and control had been assumed by Partnership Pacific's agent, Coopers & Lybrand."
In his oral evidence, Mr Earl stated:
"And what was the general nature of those terms? ... Well the general nature of the arrangement was that it was to be walk-in walk-out handover with immediate effect. Mr Alexander was very anxious not only to preserve the tax effectiveness of the structure but also to preserve the goodwill of the hotel, if you like, to ensure that there was a kind of seamless handover that wouldn't effect trading or the reputation of the hotel. And I think they talked about the need to realise it for the best result in terms of that sort of consideration. There were other aspects of the arrangement as well but that was the one that concerned the handover part of it.
In relation to that was there any specific agreement he expressed as far as the hotel and its creditors were concerned? … Well that's something that I raised with him because Mr Hosken had raised it with me. Mr Hosken was concerned to ensure that Westpac was accepting responsibility for the creditors. I think I probably thought it was almost unnecessary to raise it initially but I did raise it to ensure there was no doubt about it and there was no substantial problem with it but Mr Alexander qualified the arrangement by saying that he had heard some suggestion that there were personal liabilities or creditors of Mr Hosken mixed up in the hotel book and he didn't want to assume responsibility for those creditors. And I had some difficulty understanding how that could be the case and I asked Mr Hosken about it specifically and he was puzzled, as I was, and said that there were no such liabilities as far as he was aware and I then told Mr Alexander that we had no problem with this qualification because as far as we were concerned there were no such liabilities and I can recall saying to him something to the effect that I couldn't imagine really what he was referring to and he quoted a specific example by saying to me he didn't want to pay my legal bill so he wanted to make it clear that Mr Hosken should be responsible for my legal bill, in his view.
Yes, I follow. Did the terms of the hand over of operations involve other aspects beyond walk in walk out and payment of the trade creditors? … Yes, there were arrangements that Mr and Mrs Hosken would in effect surrender various assets to be applied towards reducing or setting off the Westpac debt or the Partnership Pacific debt. Mr and Mrs Hosken were to be released from their guarantees and any obligations in relation to the hotel or the financing package.
When you say Mr and Mrs Hosken were to hand over some assets, were they assets of theirs personally or held through some corporate structure or other? … I think it might have been both because there was a reservation in the case of their personal residence, for example, which I think was probably in their personal names but I think most of the assets would have been in the name of companies.
So you can't recall at this juncture, I imagine, which assets they were? … I don't remember, there were some mortgages or debentures signed in the weeks following the settlement but I can't remember specifically what they were.
Was there any hostility in the course of your negotiations with Mr Alexander? … No, it was a very, relatively relaxed sensible friendly meeting, both sides really were working to achieve what seemed like a sensible result in terms of an orderly hand over and continuation of business. And in fact at the end of the meeting Mr Alexander asked me if I would go to his solicitors in Melbourne to instruct them what they were to do, so he was relatively relaxed about it.
I see. You were returning or proposing to return to Melbourne after the seminar? … Yes.
And Mr Alexander asked you if you would visit Westpac's solicitors in Melbourne? … Mallisons [sic] in Melbourne, yes."
He was cross-examined on the hearing and did not resile from the substance of his recollection. At no time was it suggested that he had fabricated the account. He was asked about recollection and replied that he had frequent occasions to recall the events because of his dealings with Mallesons, the bank's solicitors, within some two days of the meeting, and that further, he had made use of his file in recalling the details of the agreement. It was suggested:
"Well now isn't it the position that your understanding as to Partnership Pacific taking responsibility for trade creditors didn't come from any promise by Mr Alexander or any express statement by Mr Alexander but was something you inferred from the things mentioned in that second sentence? … No, that's not entirely true, I certainly inferred it at the outset but it was confirmed with my discussion with Mr Alexander.
Well you see you haven't said in that statement have you that Mr Alexander promised or confirmed in speaking to you that Westpac or Partnership Pacific were going to pay the trade creditors or take responsibility for trade creditors? … Well I may not have said that in so many words but if it can only - it was clearly understood and it can only be the position given that Mr Alexander I've said was making certain exclusions.
Wasn't it the position, wasn't it the case that Mr Alexander discussed with you arrangements for creditors to be paid out of the proceeds of sale of real estate belonging to companies in the Hosken group rather than being paid out of the - of of Westpac or Partnership Pacific's own moneys? … Absolutely not, there was no such discussion."
There was no further cross-examination on the issue other than that relating to the memorandum of costs which had given rise to the fifth charge comprised in the complaint. Significantly, Mr Earl's evidence that he had advised the applicant of the concluded agreement was not challenged. It is wrong to say that his recollection was poor, or that he had raised the matter apologetically. His account was not that he understood the terms of the agreement by inference, rather that he said it was specifically discussed with Mr Alexander and that there could be no doubt as to the meaning of those terms. The magistrate was entitled to reject the evidence, but in order to do so was required, as he had done with the applicant, to determine the credibility of the witness. The learned magistrate had earlier heard conflicting evidence from Mr Alexander who stated in his evidence that on 16 September he had held a long and courteous meeting with Mr Earl. The following questions and answers are relevant to the consideration of the findings of the learned magistrate:
"Right. Did you have a long conversation with Mr Hosken on Saturday 16 September recapping on the terms of the discussion of 13 September? … I believe I did.
And still no agreement, no final agreement had been reached? … Can I just correct my last response?
Yes? … We certainly had a long conversation on a weekend, a day, I recall that, but whether it was - I would not like to limit it to recapping what was said.
Now, I want to suggest to you that finally you had a meeting with Mr Hosken's solicitor, Mr Richard Earl, from Minter Ellison, in your office in Sydney? … Yes.
And at that time you were planning to take some drastic action? … Yes.
And you had a long discussion with Mr Earl at your office? … Yes.
About trying to reach a final agreement for the hand over of the hotel management? … I believe briefing him on what we proposed to do, yes.
It was not quite that, was it, because there was no specific agreement at that stage, was there? … Well, I believe we'd gone past the discussions with - in terms of the memorandum of - of associate memorandum of understanding and we were going to take action in terms of our documentation to proceed with receivership.
But at that stage you could not do that, could you, without consent because you had not served notice of default? … Oh, you'd have to ask the lawyers, I had lawyers briefing me no doubt.
I see. Well, Mr Earl turned up and you indicated to him that you were proposing to send Coopers and Lybrand into the hotel the next day? … Yes.
And Mr Earl had a discussion with you in which you indicated that you were intending to organise a take over of the hotel on a going concern basis? … Yes.
And you had people in your office who you were giving last minute instructions to, to achieve that? … Yes.
And you then had a discussion with Mr Earl about how or what was the best way in which Westpac would take over control of the operating structure of the hotel without prejudicing any possible future taxation benefits that might be available when the hotel was sold? … That may have been part of the conversation.
And the reason for that I suppose, was obvious, because preserving the taxpayers package might have a feel [an appeal] to a prospective purchaser? … Yes.
You asked Mr Earl, in formal advice - I do not mean you engaged him as your solicitor, but you asked his advice how best to achieve that and Mr Earl's response was that he had reviewed the financial package recently but in the end he reached an expressed agreement with you that Mr Hosken and all people and companies associated with him would resign or otherwise do anything reasonably required by Partnership Pacific in order to effectively pass control of the whole ownership of the hotel over to Partnership Pacific? … Are you asking if I …
Do you not remember this? You remember the discussion? … I remember the overview of the discussion but the - but I think you're implying that I sought his advice.
You asked him how that might best be achieved? … From the point of view of managing Mr Hosken.
From the point of view of ensuring that it was taken over as a going concern as opposed to any other way that might endanger the tax-based package? … I can't recall the detail to be quite honest, I really have difficulty answering the question, but if I may make the reservation, I would have been acting under my legal advice. I would not be asking the borrower's lawyer for advice.
Well, you characterise it as advice, what I am suggesting is that you discussed with Mr Earl what he thought was the best way of achieving the preservation of the taxed-based package. You do not remember doing it? … No, I don't, no.
I want to suggest to you that you indicated to Mr Earl that the bank wanted to take over the hotel on a walk-in walk-out basis? … Yes.
And you had some concern in relation to that that some of the creditors might be, in effect, Hosken companies or members of the Hosken Group rather than ordinary trade creditors so-called? … Yes, yes.
And what your attitude was, it was: we're not paying them. And did Mr Earl, in your office, telephone Mr Hosken? … I can't recall.
You would not disagree with me? … No, I wouldn't disagree with that.
And you would not disagree that Mr Earl came back and said that there were no - that neither Mr or Mrs Hosken nor any of their Hosken Group companies were trade creditors on the books of the hotel? … He may have said that, I probably discounted if he said it.
I see. Well, did you not then reach agreement that it would be walk-in walk-out except no payments to Mr and Mrs Hosken or the Hosken Group - in other words, they could be put aside? … That was certainly what I was trying to achieve.
But that was what was agreed, was it not? … I frankly can't recall.
I see. It was part of the agreement that you reached with Mr Earl that all of the Hosken Group assets would be handed over to Westpac along the lines suggested in your memorandum of understanding? … I don't believe that's right.
You do not believe that is right? … We would be acting under our security to whatever extent our security was.
But you did not have security over those documents, did you? … I can't recall.
I want to suggest to you that you did not have …? … I know we didn't have security over Hosken's home, I know that.
But you had guarantees, did you not? … Yes, yes.
But no security over the Hosken assets? … Yes, that'd be right.
That was to say The Heidelberg, Yorktown Square, 38a Brisbane Street and Morton House? … Yes.
And the other assets of the Group? … Yes.
And what was reached in this agreement was an agreement by Mr Hosken and all the Hosken Group companies to hand over all these assets to Westpac for Westpac to sell; that is right, is it not? … Hosken wasn't there; his lawyer was there.
His lawyer was there. That was what his lawyer negotiated with him; that is right, is it not? … I can't answer the question.
I see. Are you aware that within a matter of days the properties were handed over to Westpac for sale but Westpac, in due course, sold them all? … I don't believe I am."
The magistrate, in considering any conflict, had before him a memorandum prepared by Mr Alexander on 14 September which recorded the details of two conversations with the applicant and Mr Graham. That memorandum stated:
"PETER ALEXANDER 14th September, 1989
SENIOR MANAGER
CORPORATE BANKING DIVISION
LAUNCESTON INTERNATIONAL HOTEL
I had two long conversations yesterday with each of Robert Hosken and Rick Graham.
The essence of the conversations was as follows:
-Hosken apparently is hanging onto the Hotel for as long as possible with the fear that as/when the bank gains control of the Hotel, he will be made bankrupt; (several parties have advised me that his wife is in a state of nervous breakdown).
-He claims to have gross creditors of about $650,000 and giving allowance for debtors and other offsets his net creditors approximate $450,000.
-He believes he is close to sale of Yorktown Square for $6M; against this he owes $4.3M and will have legals and selling costs of $200,000 - say $4.5M all up.
-Taking the above $4.5M + creditors $0.5M. He has a net interest in Yorktown Square of approximately $1M.
-I have taken the view that if we were to call his guarantee at this stage, in terms of above, we would get a maximum of $1.5M.
-I have suggested without commitment that of the net $1M we would permit him to take ½ and start afresh in business; we would take the other ½ and apply it towards accrued interest. We would limit our call under his guarantee to the $1.5M and defer calling the guarantee for 2 years. This would give him an opportunity to recommence business and serve to build up a surplus to met the guarantee in 2 years time. I intimated that if things were favourable at that time we may extend guarantee for a further period.
- For his part Hosken would have to agree to:-
· Relinquish the Hotel.
· Legal commitment not to place his money and assets in trusts and company structures to negate the call upon guarantee in 2 years time.
· Not to take legal action against the banks; this would void the agreements.
· To consent to sale of the Hotel if/when banks find a buyer.
This hopefully would enable us to gain control of hotel ahead of 31/10/89, would avoid undoubted litigation and achieve the sale of the hotel without the impediment of the difficulties Hosken would and could inevitably effect.
I ran the foregoing past G Rintoul, General Manager, Banking, Lloyds Bank this morning who confirms his support to the foregoing subject to having Hosken appoint the banks as his attorney to cover any other issues which inevitably may arise.
The foregoing also avoids Westpac in particular being held in a negative light in the small Tasmanian market, relative to there being substantial unpaid creditors in Launceston.
Peter B Alexander
Senior Manager
Corporate Banking Divisioncc Mr David Clarke
PPL, Melbourne"
The learned magistrate concluded in his reasons for judgment at 17 that:
"It should be observed that at this stage [mid-September] they [Westpac] could not have had any real idea of exactly how much a concession like this would cost them. Creditors ended up being a far greater figure than that which it was assumed to be in September."
That conclusion impacted on his reasoning process, when, in the course of his decision, he asked rhetorically, at 17:
"It is, it appears, his case that without any further concession from him and without the appearance of any other factor in the equation, Westpac made what must be stated to be a considerable additional concession concerning the payment of creditors, and without linking it to the Hosken guarantees. Why would they do such a thing?"
The conclusion was not one permitted by the evidence. The memorandum of understanding, P243, signed by Mr Alexander and dated 15 September stated the extent of outstanding debts as being approximately $650,000. Significantly, the same memorandum, which consisted of an analysis of the net worth of the operation after the sale of other properties, contained a notation "of the 'Net Available' figure, Hosken and/or LIPL will be permitted to pay out net creditors of $450,000, thus reducing the net available to Hosken, to $1,450,000." That notation was consistent with the version of events provided by Mr Earl.
The learned magistrate resolved the matter by finding Mr Alexander to be an honest witness. He made observations in relation to the evidence of Mr Earl, but, with respect, his reasoning process was flawed. The recollection of the witness was comprehensive and his state of mind did not follow from a misunderstanding of a "walk in, walk out" agreement. There was no misunderstanding as to operating costs and trade creditors other than which legal entities were at that particular time operating the hotel. The conclusion that an agreement was unlikely to have been made under the circumstances is also, with respect, flawed. The bank was determined to take over the management of the hotel operation as quickly and smoothly as possible. The persons appointed to do so were at the meeting attended by Mr Earl. The bank, in fact, took over the operation on 19 September. The bank had not issued a statutory notice and required the co-operation of the applicant to achieve its purpose. Westpac was in disputation with another finance provider, Lloyds Bank NZA Limited, and there had been a threat of legal action by the applicant as the memorandum of 15 September recorded:
"That Hosken will not initiate any legal action against PPL/Lloyds/Westpac in respect of any matters referred to in [the] memorandum."
That the bank required the co-operation of the applicant is shown in the same memorandum which records:
"Should Hosken and the Directors of LIPL forthwith voluntarily surrender the Operator role of the Hotel and enter into certain legal commitments, PPL, Lloyds and Westpac would agree to certain concessions."
Since the aim of the discussion recorded in the memorandum was:
" … to obtain voluntary transfer of the Operator role to PPL, and to avoid formal bankruptcy of Hosken. If Hosken and LIPL consent to the basis of this memorandum, each of PPL, Lloyds and Westpac will promptly seek to obtain a formal response."
The learned magistrate was required to be satisfied beyond reasonable doubt that no agreement existed, or that, at least, the applicant held no honest belief that it did exist. The reasoning process was, with respect, consistent with disbelief as to its existence and implied that the defence had failed to prove, as a positive fact, that existence.
The learned magistrate placed some reliance on events subsequent to the meeting in September. In particular, he referred to the fact that:
"Neither Mr Earle in writing, nor Mr Hosken in anyway ever suggested during previous opportunities to do so, that Westpac would pay creditors immediately from its own funds."
The memorandum of understanding of 15 September demonstrated that there were to be further negotiations and precise agreements. As of 18 September, Mr Earl believed there existed a concluded agreement. His evidence on the matter was:
"14On the morning after my negotiations with Mr Alexander [corrected in oral evidence to several days] I attended the office of Partnership Pacific's solicitors, Messrs Mallesons in Melbourne and explained to Messrs Russell and O'Brien of that firm the arrangement which had been reached on the previous evening. Included in my explanation was a statement that Partnership Pacific would be paying the trade creditors in the ordinary course of business, subject to being satisfied that these creditors were properly creditors arising out of the hotel operations and not liabilities of other unrelated Hosken entities. However, this proposition was immediately challenged by Partnership Pacific's solicitors who explained to me that of course Partnership Pacific would pay the creditors of the operating entity appointed under the financing documents, because that entity acted as agent for the hotel owning entity in the structure, but that they had become aware that Mr Hosken had substituted another company in place of the company which was originally appointed as the operating entity by the finance documents and that, as this re-arrangement had not been consented to by Partnership Pacific under seal as required by the documents, they could not recommend to their client that it accept responsibility for creditors of this company. Until this substitution was mentioned to me by Partnership Pacific's solicitors, I was unaware that it had occurred. I immediately contacted Mr Hosken and his accountant who confirmed that a new entity had been substituted as the operating entity, but that Partnership Pacific had been informed of this and had consented to it and indeed had met certain of its liabilities already in the course of the initial operations of the hotel. I then pointed out to Partnership Pacific's solicitors that, in circumstances where consent had in fact been provided and the parties had proceeded on the basis of this substitution, I did not believe that a provision in a security document requiring formal consent under seal could override the actual performance of the contract by the parties and that, in any event, the settlement arrangements reached the previous evening amounted to a concluded arrangement between the parties which had been performed so far as my client was concerned by handing over control of the hotel and that it was neither appropriate nor possible for them to attempt to renegotiate the basis of the arrangement.
15Over the ensuing weeks, Partnership Pacific's solicitors presented repeated drafts of a document purporting to reflect the settlement arrangements reached between Partnership Pacific and Hosken but which omitted critical elements of the arrangements so far as Mr Hosken was concerned. Ultimately, I advised Mr Hosken that his interests would be better served by relying on the oral agreement reached between him and Mr Alexander in September and the actual performance of that agreement and that he should not sign any document which attempted to vary that arrangement to his disadvantage. This position was also advised to Partnership Pacific's solicitors by a letter on or about 16 November.
Following the meeting with Mallesons, Mr Earl wrote to that firm on 26 September in the following terms:
"RHE 106
26 September 1989
Messrs Mallesons Stephen Jaques
Solicitors
525 Collins Street
Melbourne Vic 3000 Attention: Mr F C O'BrienDear Sirs,
Launceston International Hotel
We acknowledge your letter of 22nd September enclosing copy notices to Launceston International Hotel Pty Ltd, and demands to various guarantors.
It appears to us that the notices enclosed with your letter are entirely nugatory. The management arrangements for the hotel have already been terminated by agreement between the parties and the parties have also agreed to release of the guarantors upon whim the demands have been served, subject to execution of collateral securities over various pieces of real estate and to co-operation by Mr Hosken and his associated entities in the change of management of the hotel.
The second last paragraph of your letter is entirely misconceived, as the arrangement has already been agreed, there are no further 'negotiations' required and the parties have in fact all acted in reliance upon the agreement reached since last Tuesday.
We are also at a loss to understand the purpose of the notice to Launceston International Hotel Pty Ltd. Whilst Mr Hosken will continue to co-operate with the new management arrangements in terms of the agreement reached, he cannot be expected to provide complicity in any attempt to defeat the ordinary creditors of Launceston International Hotel Pty Ltd. There is no ample evidence that your client acquiesced in the arrangement to substitute Launceston International Pty Ltd as manager of the hotel. For example, the operating bank account in the name of Launceston International Hotel Pty Ltd was opened only after Mr Athol White provided his consent, and the enclosed copy guarantee provided by your client to Hydro-Electric Commission of Tasmania specifically refers to Launceston International Hotel Pty Ltd.
We believe that both partners are anxious to complete the matter by execution of a formal release agreement and we will be pleased to receive your proposed draft as soon as possible.
Yours faithfully,
MINTER ELLISON"
Further reference was made to the matter in a subsequent letter of 16 November 1989, the relevant passages of which state:
"The matters agreed between the parties on 18th September are well understood and, although there have subsequently been some specific additional maters or variations agreed between the parties, your client is not entitled to dictate the numerous other additional matters and variations which it has now instructed you to include in the document enclosed with your letter.
…
Finally, we mention that as it appears your client is not prepared to meet a number of outstanding liabilities of Launceston International Pty Ltd and/or Launceston International Hotel Pty Ltd we can see no alternative available to the directors other than to place these companies in liquidation. We propose to advise them to take appropriate steps in that regard unless you indicate your client would like to suggest some other practicable course of action for those companies."
The finding made by the learned magistrate was not permitted by the evidence and this matter alone taints the reasoning process. The letter supported the statement of belief by Mr Earl that a precise agreement had been reached with the bank as to the payment of trade creditors. In those letters he was not referring to a belief he held as a result of information provided by his client, but as to an agreement made by him on his client's behalf.
The learned magistrate was required to exclude the evidence of Mr Earl before he could safely conclude absence of agreement. The only means were adverse findings as to credibility or reliability, contradictions internal to his testimony or documentation generally. He made no adverse finding as to honesty, there were no significant internal contradictions and the documentation, if anything, supported the version of Mr Earl. The reasoning process employed by the learned magistrate was consistent with a conclusion that the applicant had not proved a positive assertion.
Honest belief
Even if the above analysis is incorrect, there remains a finding that the learned magistrate was "satisfied that Mr Hosken never believed any such thing". The learned magistrate was required to be satisfied beyond reasonable doubt that the applicant held no such belief (Chew v R (supra)).
Discounting the evidence of the applicant, as he was entitled to do, the learned magistrate had before him uncontradicted and unchallenged evidence of a legal practitioner that he had advised his client of the existence and terms of a concluded agreement to the effect that the bank would be responsible for unsecured trade creditors. That evidence was corroborated by the correspondence dated 26 September and 16 November 1989. No partner or employee of Mallesons was called to give evidence to the effect that Mr Earl had not stated to them at the September meeting the terms of the agreement as he understood them to be. If the basis for concluding that Mr Earl was wrong in his recollection and account of the meeting and the agreement be flawed, then any conclusion reached that Mr Earl did not tell his clients that the agreement existed is even more unreliable. Even if the finding that Mr Earl mistakenly believed that the agreement had been reached was one based on belief, inferences and information provided by his client is correct, then his evidence that he told his client of the terms of the agreement (wrongly on the basis of that finding) remains cogent. There is further reason to doubt a conclusion that the applicant lacked the requisite belief. In November 1989, he transferred certain properties, which had not been subject to security, to the bank. Given the other findings as to the conduct of the applicant, it is unlikely that he would do so unless it was to his advantage. The holding of the belief that the bank would honour its commitment to pay trade creditors would be such an advantage.
It follows that the motion to review the convictions in relation to charges 2, 3 and 4 should be upheld.
January offences
There is some additional complexity in considering the charges relating to the transactions on 24 January 1990. The learned magistrate accepted that $1,530 of the moneys paid did not constitute an improper payment, but he was not required to consider whether, if the applicant held an honest belief as of September, such a belief could have changed once Mallesons disputed the terms of the agreement. By this stage the applicant would have been aware that the bank did not intend to pay the trade creditors and that irrespective of the rights of Launceston International Hotel, vis-à-vis Partnership Pacific, the Company remained liable to its creditors and was required to take into account their interests and seek indemnity against the bank once it had paid them. In such circumstances, there remained an evidentiary basis for conviction.
However, there remains the evidence of Mr Earl that:
"Ultimately, I advised Mr Hosken that his interests would be better served by relying on the oral agreement reached between him and Mr Alexander in September and the actual performance of that agreement and that he should not sign any document which attempted to vary that arrangement to his disadvantage."
The import of that evidence might require further consideration. However, the learned magistrate was not required to consider this aspect and made his decision on the bases already discussed. Accordingly, the motion to review in relation to charges 5 and 6 should be upheld. The parties will be afforded an opportunity to make submissions in relation to the disposition of these two matters.
Sentence
Given that the appeal against the convictions has been upheld, it is not necessary to consider this ground of appeal. It is not appropriate for this Court to re-determine sentence, or remit the matter, until the question of the disposition of charges 5 and 6 has been resolved.
Orders
1That the motion to review in relation to the first charge comprised in Complaint 46300/92 be dismissed.
2That the motion to review in relation to charges 2, 3 and 4 comprised in Complaint 46300/92 be upheld and the convictions recorded on 23 June 1998 be quashed and in substitution thereof an order made that each charge be dismissed.
3That the motion to review in relation to charges 5 and 6 comprised in Complaint 46300/92 be upheld and the convictions recorded on 23 June 1998 be quashed.
Counsel are invited to make submissions in relation to consequential orders required by orders 1 and 2.
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