James Stephen Lewis v The Queen
[2014] VSCA 188
•26 August 2014
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCR 2013 0210
| JAMES STEPHEN LEWIS | Appellant |
| v | |
| THE QUEEN | Respondent |
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| JUDGES: | MAXWELL P, WEINBERG and KYROU JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 19 May 2014 |
| DATE OF JUDGMENT: | 26 August 2014 |
| MEDIUM NEUTRAL CITATION: | [2014] VSCA 188 |
| JUDGMENT APPEALED FROM: | DPP v Lewis (Unreported, County Court of Victoria, Judge Meredith, 9 October 2013) |
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CRIMINAL LAW – Appeal against conviction – Offence of omitting or authorising the omission of a matter without which a document lodged with ASIC is known to be misleading in a material respect, contrary to s 1308(2) of the Corporations Act 2001 (Cth) – Whether verdict was unreasonable or could not be supported having regard to the evidence – Evidence was sufficient to enable the jury to find beyond reasonable doubt that the appellant had committed the criminal act with the requisite criminal intention – Hypotheses consistent with innocence upon which the appellant relied were so far-fetched that the jury was entitled to reject them altogether – Appeal dismissed.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr T Alexander | Impex Lawyers |
| with Mr H Kirimof | ||
| For the Crown | Mr R Pirrie | Commonwealth Director of Public Prosecutions |
MAXWELL P:
I have had the advantage of reading in draft the reasons for judgment of Kyrou JA. For the reasons which his Honour gives, I too would dismiss the appeal.
WEINBERG JA:
I agree, for the reasons given by Kyrou JA, that this appeal should be dismissed.
KYROU JA:
After a 13 day trial in the County Court, the appellant was convicted by a jury on 6 September 2013 of one charge under s 1308(2) of the Corporations Act 2001 (Cth) (‘Act’). This relevantly provides as follows:
A person who, in a document … lodged with … ASIC, … omits or authorises the omission of any matter or thing without which the document is to the person’s knowledge misleading in a material respect, is guilty of an offence.
The appellant received a wholly suspended sentence of 12 months imprisonment. The sentencing judge ordered that the appellant be immediately released upon his entering into a recognisance in the sum of $2,000 to be of good behaviour for 18 months.
The appellant was granted leave to appeal his conviction by Osborn JA on 5 March 2014 on the ground that the verdict was unreasonable or could not be supported having regard to the evidence.[1]
[1]See Criminal Procedure Act 2009 s 276(1)(a).
For the reasons set out below, I would dismiss the appeal.
Factual background
The appellant was a certified practising accountant. He was one of three directors of Altitude Property Ltd (‘Altitude’), a company incorporated on 18 July 2006. The other two directors were Clestus Weerappah and Elizabeth Clegg.
Altitude was incorporated for the purpose of acquiring an interest in a property at 81 Lorimer Street, Port Melbourne (‘Property’), from Alamanda Property Investments No 2 Pty Ltd (‘Alamanda’). The registered proprietor of the Property was My Building No. 1 Pty Ltd (‘MBN1’), as trustee for the Darling Street Unit Trust (‘Trust’). Alamanda held all the shares in MBN1 and all the units in the Trust. The sole director of both Alamanda and MBN1 was Mr Weerappah. The purchase price was $1.78 million and was to be paid from a public fundraising offer for shares in Altitude.[2] It was proposed that the Property would be developed as a high rise residential building.
[2]It appears that Altitude’s indirect ownership of the Property would be subject to an existing mortgage which secured a loan for $1.684 million.
The appellant, Mr Weerappah and Ms Clegg were also directors of Elite Equities Ltd (‘Elite’), a financial advisory company which was responsible for promoting the sale of shares in Altitude. Applications for shares in Altitude and application monies were to be sent to Elite.
Altitude issued a prospectus on 20 July 2006 (‘First Prospectus’). The First Prospectus was prepared in-house at Elite without assistance from any external adviser. The appellant signed the First Prospectus, which set out his role and responsibilities as a director of Altitude.
The First Prospectus was lodged with ASIC on 28 July 2006.
A ‘Heads of Agreement’ document was signed by the appellant on behalf of Altitude, and by Mr Weerappah on behalf of Alamanda (‘Signed Heads of Agreement’). The Signed Heads of Agreement is dated 11 August 2006 on the first page and, on the second page, it is expressed to be ‘[s]igned as an agreement on the 11th day of August 2006’. That date appears on two other parts of the document.
Under the Signed Heads of Agreement, Altitude agreed to buy up to all 100 of the issued units in the Trust for $17,800 per unit so as to effectively take ownership of the Property. The Heads of Agreement set out a schedule of payments to be made by Altitude to Alamanda, with the first payment to be made on 11 August 2006. It also contained an incentive payment agreement (‘IPA’), pursuant to which Alamanda was entitled to 50 per cent of the net increase in the value of the Property up to $15 million, plus 25 per cent of any increase over $15 million.
The effect of the IPA was that Altitude was required to pay a large proportion of any increase in the value of the Property to Alamanda, rather than to the future shareholders in Altitude.
Between 11 August 2006 and 6 December 2006, Altitude made a series of payments totalling $1.825 million for the units in the Trust and shares in MBN1, thereby acquiring the Property.
On 17 August 2006, ASIC rejected the First Prospectus and issued an interim order pursuant to s 739(3) of the Act, prohibiting offers, issues, sales or transfers of shares in Altitude under the First Prospectus. ASIC was not aware of the existence of the IPA. Its concerns centred on the lack of financial information in the First Prospectus about MBN1.
On 18 August 2006, Mr Weerappah, on behalf of Altitude, engaged McCullough Robertson lawyers to assist in gaining ASIC approval of a prospectus for the offer of shares in Altitude. The lawyers were not instructed to undertake a due diligence in relation to the transaction. Rather, their role was to ‘patch up’ the prospectus so that it would be acceptable to ASIC. On the same day, Mr Weerappah provided Mr Sean Robertson of McCullough Robertson with a copy of the First Prospectus and an unsigned version of the Heads of Agreement that was dated 11 August 2006. He stated in his email, ‘[a]ttached is how we intend to purchase the site in Lorimer Street.’
McCullough Robertson negotiated with ASIC for the revocation of the interim order and assisted Altitude with the drafting of a replacement prospectus (‘Second Prospectus’). The appellant and others supplied information and documents to McCullough Robertson to assist with this process.
At 2.34 pm on 22 August 2006, Ms Clegg sent an email to McCullough Robertson and copied it to the appellant. The email attached the unsigned version of the Heads of Agreement that was previously forwarded to Mr Robertson by Mr Weerappah on 18 August 2006. The unsigned version of the Heads of Agreement differed from the Signed Heads of Agreement in several respects. For example, the unsigned version provided for a sale of all 100 units in the Trust for $22,000 per unit. Further, the incentive payments in the unsigned version were different in magnitude and were subject to different value thresholds compared to the Signed Heads of Agreement.
At 3.33 pm on 22 August 2006, the appellant sent an email to McCullough Robertson in response to Ms Clegg’s email, stating: ‘The heads of agreement is a preliminary document. As we are buying the entity I need a range of warranties from the vendor and the entity regarding liability etc.’
Mr Robertson replied to the appellant the same evening, stating that he had ‘only briefly looked’ at the unsigned version of the Heads of Agreement. The appellant did not refer to or send the Signed Heads of Agreement to McCullough Robertson on 22 August 2006 or subsequently. McCullough Robertson were never asked to advise on whether the IPA should be disclosed in the Second Prospectus and were never given any instructions in relation to it.
On 11 September 2006, the Property was valued by a real estate valuer at $3.5 million. At 3.27 pm on the same day, the appellant sent an email to McCullough Robertson, asking:
Why do we have to wait for 2 years to earn money from the fund when external parties have no such restrictions?[3] It seems we are doing this just to be nice guys. It needs to be fair all round. We will be working to make the investors dollars work for them, surely we are entitled to be remunerated for that. If we are not to be, why would we do the fund in the first place.
[3]This question appears to relate to provisions in the Second Prospectus which effectively deferred for two years remuneration for the directors of Altitude and Elite’s entitlement to receive certain fees from Altitude.
At 5.07 pm on 11 September 2006, the appellant was copied in on an email from Mr Robertson, which stated, ‘Attached is the prospectus’.
On 15 September 2006, the appellant went on leave from work and travelled to Queensland. However, he remained in email contact with Mr Robertson.
On 19 September 2006, the appellant sent an email to McCullough Robertson on the topic of how to allay ASIC’s concerns. He stated: ‘We can cancel the Lorimer Street Project if it is too complex and look for new projects, totally deleting reference to it in the Prospectus.’ He also noted that he was on holidays and dealing with his emails ‘every morning’.
On 25 September 2006 Bruce Campbell of McCullough Robertson sent an email to the appellant, stating:
I have a draft prospectus which was forwarded to ASIC. It is marked up with the changes that Sean (and you?) made to the doc. I have accepted those changes and made a number of changes to try to address ASIC’s issues now that we have audited figures for the trust.
You have amended your draft of the prospectus yourself now. Is it proposed that I amend the draft I have and insert your changes? Whom do you propose to have carriage of the doc?
Later that day, the appellant responded to Mr Campbell as follows:
I need you to manage the changes to the document. I have been away since 15th September and am not on top of what has transpired. I changed the last draft I had in my system and only at the items I notified you of. I believe the changes I made should be included.
At 10.30am on 26 September 2006, a further copy of the Second Prospectus was emailed to the appellant by McCullough Robertson. At 12.28pm on the same day an employee of one of Mr Weerappah’s companies (Paul Brooks) sent an email to Mr Weerappah and the appellant stating that he had discussed with McCullough Robertson two further changes to the Second Prospectus and that he had advised them that ‘it is ok to send to ASIC.’ Later that afternoon, a further version of the Second Prospectus was submitted to ASIC.
The appellant and Ms Clegg signed a sale of units and shares agreement dated 30 September 2006 on behalf of Altitude for its acquisition of all the units in the Trust and all the shares in MBN1 — and thus ownership of the Property — from Alamanda for $1.78 million (‘Sale Agreement’). The Sale Agreement also included details of the IPA referred to at [13] above. The Sale Agreement was not provided to McCullough Robertson.
On 6 October 2006, ASIC revoked the interim order and the Second Prospectus was issued. The Second Prospectus, in the final form in which it was lodged with ASIC, was dated 6 October 2006 and was signed only by Mr Weerappah. There was no direct evidence that the appellant had read the final form of the Second Prospectus before it was lodged with ASIC.
The Second Prospectus included a section titled ‘Material Agreements’ but did not contain any reference to the IPA. It also included an ‘Expenditure Forecast’, which did not disclose the IPA.
The Second Prospectus entitled Elite to receive fees from Altitude for management, administrative and support services and for due diligence reviews on investments. Elite was also entitled to receive an annual portfolio management fee and an annual portfolio performance fee. Between 5 October 2006 and 19 June 2007, Altitude made payments of $167,760 to Elite.
As directors of Altitude and Elite, the appellant, Ms Clegg and Mr Weerappah were entitled to receive remuneration for their services.
Altitude raised a total share capital of $3,975,002 from the public. Between 10 January 2007 and 7 June 2007 incentive payments totalling $745,000[4] were paid by Altitude to Alamanda pursuant to resolutions of the directors of Altitude.
[4]At trial, the amount was erroneously calculated at $735,000.
Development of the Property never took place. On 12 March 2009, the Federal Court appointed Mr Simon Wallace-Smith as provisional liquidator of Altitude. Mr Wallace-Smith identified further incentive payments made to Alamanda, bringing the total amount paid to approximately $1.445 million. It was Mr Wallace-Smith’s opinion that the nature and size of the incentive payments rendered them material transactions with the capacity to have a material effect on the profitability of Altitude.
The mortgagee sale of the Property resulted in a shortfall of $44,000.
County Court trial
At trial, it was common ground that the IPA was material to the Second Prospectus.
The Crown case was that the appellant failed to disclose the existence of the IPA and that he knew that its omission from the Second Prospectus made that document misleading in a material respect.
The defence case was that the appellant had neither omitted nor authorised the omission of the IPA from the Second Prospectus. The appellant relied on the fact that he had not signed the Second Prospectus or seen it immediately before it was lodged with ASIC. He also relied on the fact that McCullough Robertson had been given a copy of the unsigned version of the Heads of Agreement which contained a variant of the IPA and that he had not asked them to omit the IPA from the Second Prospectus.
The issues at trial were whether the appellant had omitted or authorised the omission of the IPA from the Second Prospectus and whether he knew that such an omission rendered the Second Prospectus misleading in a material particular.
The appellant did not give evidence and no interview had been conducted.
Ms Clegg gave evidence that she did not believe that the Heads of Agreement was signed prior to the lodgement of the Second Prospectus with ASIC. However, she said that she was not involved in the preparation of the Heads of Agreement and was not present when the document was signed. At the conclusion of her evidence, she said that she did not recall whether the Heads of Agreement had been signed prior to the issuing of the Second Prospectus.
Mr Robertson gave evidence that he dealt primarily with the appellant. He treated the unsigned version of the Heads of Agreement as having no bearing on the transaction as it was unsigned and merely a preliminary document. He considered it to be ‘more of … a talking point’ and he had no recollection of being asked to advise on whether it should be included in the Second Prospectus. He had no recollection of being sent the Signed Heads of Agreement or the Sale Agreement and there was no record of his firm having received these documents.
Issues on the appeal
On the appeal, it was common ground that, in order to succeed, the appellant had to demonstrate that it was not open to the jury acting reasonably to find beyond reasonable doubt that the elements of the offence were present.
It was also common ground that this was a circumstantial case.
In Knight v The Queen,[5] Mason CJ, Dawson and Toohey JJ stated that in circumstances in which an element of the offence charged — such as the state of mind of the accused — is necessarily a matter of inference from the facts as found by the jury, the question is whether there were no other inferences which were favourable to the accused reasonably open on the facts.[6] Their Honours cited with approval the following passage from the judgment of Dixon J in Martin v Osborne:
If an issue is to be proved by circumstantial evidence, facts subsidiary to or connected with the main fact must be established from which the conclusion follows as a rational inference. In the inculpation of an accused person the evidentiary circumstances must bear no other reasonable explanation.[7]
[5](1992) 175 CLR 495 (‘Knight’).
[6]Knight (1992) 175 CLR 495, 502.
[7](1936) 55 CLR 367, 375; Knight (1992) 175 CLR 495, 502–3.
The appellant submitted that there were two limbs to the appeal. First, that the evidence was insufficient to enable the jury to find beyond reasonable doubt that he had committed the criminal act with the requisite criminal intention. Secondly, that it was not possible for the jury to exclude all reasonable hypotheses consistent with his innocence.
First limb of the appeal
In relation to the criminal act, the appellant submitted that there was no evidence upon which the jury could have found that he omitted the IPA from the Second Prospectus. The only possible basis for liability, so it was said, was that he authorised the omission. The appellant contended that, as he had not signed the Second Prospectus and there was no direct evidence that he had read it before it was lodged with ASIC, it was not open to the jury to conclude that he knew of the omission and thus had authorised it.
In relation to criminal intention, the appellant submitted that it was not open to the jury to conclude that he knew that the omission of the IPA from the Second Prospectus rendered it misleading in a material respect. The appellant submitted that his email of 22 August 2006 in which he described the unsigned version of the Heads of Agreement as a ‘preliminary document’ was literally correct. He pointed out that the evidence — particularly the evidence of Ms Clegg — was unclear as to whether the Signed Heads of Agreement was in existence as at 22 August 2006. The appellant contended that his email of that date could not found a conclusion that he chose the description ‘preliminary document’ in order to deter Mr Robertson from referring to the IPA in the Second Prospectus or from making any further enquiries about the IPA and its possible inclusion in the Second Prospectus.
According to the appellant, his conduct was inconsistent with any intention to deceive McCullough Robertson as to the existence of the Signed Heads of Agreement, and thereby ensure that the IPA was omitted from the Second Prospectus. The appellant contended that the jury should have considered all the surrounding circumstances, including the fact that the unsigned version of the Heads of Agreement had been provided to McCullough Robertson and that there was no evidence of any collusion between the directors of Altitude. The appellant also submitted that the fact that he did not stand to receive any direct benefit from the purchase of the Property, and was prepared to abandon the purchase if necessary, indicated that he did not have the requisite criminal intention.
Counsel for the Crown submitted that it was open to the jury to be satisfied beyond reasonable doubt that the appellant was aware of the existence of the IPA and that he took steps to conceal its existence, thereby authorising its omission from the Second Prospectus. It was further submitted that there was no other reasonable conclusion arising from the established facts.
Both parties agreed that the appellant’s email of 22 August 2006 was highly significant in relation to the first limb of the appeal. In my opinion, the importance of that email concerns not what the appellant said about the unsigned version of the Heads of Agreement but whether the Signed Heads of Agreement was in existence as at that date and, if so, why the appellant did not refer to it. Ms Clegg’s evidence about her belief about when the Heads of Agreement was signed had no bearing on the question of when the agreement was signed, as she was not a signatory and had no personal knowledge of its signing. The Signed Heads of Agreement was dated 11 August 2006 on each of the first two pages and there were two other indications in the document that it was signed on that date. Counsel for the appellant properly conceded that it was open to the jury to conclude that the Heads of Agreement was signed by the appellant on that day or on some other day prior to 22 August 2006.
The above concession was highly significant in relation to the inferences that were open to the jury in relation to the appellant’s email of 22 August 2006. If the jury concluded that the appellant signed the Heads of Agreement prior to 22 August 2006, then it was clearly open to the jury to conclude that, when the appellant sent his email to Mr Robertson on 22 August 2006, he was aware that the Signed Heads of Agreement was in existence in addition to the unsigned version. Counsel for the appellant properly conceded this.
As the jury was entitled to find that both the Signed Heads of Agreement and the unsigned version were in existence on 22 August 2006, the obvious question for the jury was why the appellant quickly responded to Ms Clegg’s email of that day in a manner that omitted any reference to the Signed Heads of Agreement and played down the significance of the unsigned version. The matters upon which the appellant relied, as set out at [50] above, could not provide much, if any, assistance on this question. Collusion and direct benefit — whether financial or otherwise — are not elements of the offence and their absence could not be regarded as significant in the overall factual matrix of the case. That factual matrix, which is analysed in detail below in the context of the second limb of the appeal, strongly suggested that the appellant deliberately sought to deflect Mr Robertson’s attention from the IPA so that it was not mentioned in the Second Prospectus.
When the Bench put these matters to counsel for the appellant, he properly conceded that if the appellant knew that the Signed Heads of Agreement was in existence as at 22 August 2006, then it was open to the jury to conclude:
(a) that the appellant’s conduct in describing the unsigned version of the Heads of Agreement as a ‘preliminary document’ and omitting any reference to the Signed Heads of Agreement was deliberate; and
(b) that the appellant’s intention was to ensure that Mr Robertson did not seek to include any reference to the IPA in the Second Prospectus and thus conceal the existence of the IPA.
It was not in dispute that, although the appellant did not sign the Second Prospectus, he intended that it be lodged with ASIC. It was therefore open to the jury to conclude that he authorised the lodgement of the Second Prospectus without any reference in it to the IPA and that he did so knowing that this omission would render the prospectus misleading in a material respect.[8]
[8]The evidence supporting the conclusion about the appellant’s knowledge is discussed under the second limb of the appeal.
Having made the concessions set out above, counsel for the appellant properly accepted that the first limb of the appeal could not succeed.
Second limb of the appeal
It will be recalled that the second limb of the appeal is that there were alternative hypotheses consistent with innocence that, in all the circumstances of the case, the jury could not exclude. Counsel for the appellant submitted that the jury should have concluded that it was reasonably possible that the appellant’s failure to inform McCullough Robertson of the IPA prior to the lodgement of the Second Prospectus on 6 October 2006 was due to:
(c) inadvertence;
(d) ignorance of the importance of the IPA to the Second Prospectus; or
(e) mistake as to whether the Second Prospectus referred to the IPA.
This submission must be considered in the context of the appellant’s involvement in the IPA and the lodgement of the Second Prospectus. The facts set out at [60] to [69] below are highly significant in this respect.
The appellant was an experienced accountant. He was thus familiar with financial records and issues of corporate cash flow and profitability.
The appellant was a director of both Altitude and Elite. Elite was the promoter of the float of the shares in Altitude and was entitled to receive fees from the float. The appellant was entitled to receive director’s fees from both companies.
As an experienced accountant and as a director of both Altitude and Elite, the appellant would have known that the attraction of the purchase of the Property for investors in Altitude — which was the only investment Altitude was actively pursuing — lay in the potential increase in the value of the Property. The appellant would also have known that payment of a large proportion of such increase in value to Alamanda, as vendor, had a material impact on the attractiveness of the investment.
The First Prospectus was prepared ‘in-house’ at Elite and was signed by the appellant. The appellant knew that the First Prospectus did not refer to the IPA.
The appellant knew that, following ASIC’s stop order in relation to the First Prospectus, McCullough Robertson were engaged to assist Altitude to address ASIC’s concerns rather than to conduct a due diligence or to advise generally on what should be included in any amended or new prospectus. The appellant knew that ASIC’s concerns did not include the IPA because its existence had not been disclosed to ASIC. Accordingly, the appellant knew that unless Altitude or Elite informed McCullough Robertson of the IPA, that firm would not be aware of it and would not consider its possible inclusion in an amended or new prospectus.
The email exchange on 22 August 2006 referred to the unsigned version of the Heads of Agreement and omitted any reference to the Signed Heads of Agreement.
The appellant signed the Sale Agreement on 30 September 2006 and must have known that it contained the IPA. He did not send a copy of the Sale Agreement to McCullough Robertson.
The appellant communicated directly with McCullough Robertson in relation to the contents of the Second Prospectus, including during the period that he was on leave in Queensland after 15 September 2006. He received copies of progressive drafts of the Second Prospectus and made changes to them or suggested changes. He was also copied in on communications between other officers of Altitude or Elite and McCullough Robertson. From these communications, the appellant had no reason to believe that anyone had informed McCullough Robertson of the IPA.
In some of the communications, the appellant gave instructions or made observations about the Second Prospectus in the first person, indicating that he had a measure of control over the work being performed by McCullough Robertson and the contents of the Second Prospectus.
The evidence clearly established that the appellant was aware of the contents of the Second Prospectus as they evolved during the drafting process. Even if he had not read all of the Second Prospectus prior to its lodgement on 6 October 2006 and was not aware of all of its contents at that time, he had no reason to believe that the prospectus would contain any reference to the IPA. On the contrary, having regard to the matters set out at [60] to [68] above, he could only have believed — if he did not have actual knowledge of all the contents of the prospectus — that the prospectus did not refer to the IPA.
As I have stated at [37] above, the materiality of the IPA was not in dispute. The potential adverse impact of the IPA on the profitability of Altitude’s investment in the Property was so obvious as to render extremely unlikely:
(f) that the appellant was not aware of the materiality of the IPA to the Second Prospectus; and
(g) that the appellant’s failure to inform McCullough Robertson of the IPA was inadvertent rather than deliberate.
In the light of the matters referred to at [60] to [70] above, the inferences that the appellant knew that the Second Prospectus omitted reference to the IPA, that without such reference the Second Prospectus was misleading in a material respect, and that he intended McCullough Robertson to lodge the prospectus without referring to the IPA, were irresistible.
Other inferences were theoretically open to the jury. They included those upon which the appellant relied, as set out at [58] above, which depended on facts within the appellant’s knowledge. However, the matters referred to at [60] to [70] above in combination point so strongly to the inferences set out at [71] above that, in the absence of any evidence from the appellant, these were the only reasonable inferences that were open to the jury.[9] In short, on the evidence adduced at trial, the hypotheses consistent with innocence upon which the appellant relied were so far-fetched that the jury was entitled to reject them altogether.
[9]Weissensteiner v The Queen (1993) 178 CLR 217, 227–9.
It follows that the jury’s verdict was not unreasonable or incapable of being supported having regard to the evidence.
I would dismiss the appeal.
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