Krecichwost v The Queen

[2012] HCATrans 294

[2012] HCATrans 294

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S167 of 2012

B e t w e e n -

ERIC KRECICHWOST

Applicant

and

THE QUEEN

Respondent

Application for special leave to appeal

FRENCH CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 16 NOVEMBER 2012, AT 11.55 AM

Copyright in the High Court of Australia

MS W. J. ABRAHAM, QC:   May it please the Court, I appear with my learned friends, MR S. FITZPATRICK and MR N.M. KIRBY, for the applicant.  (instructed by Clamenz Evans Ellis Lawyers)

MR M. A. WIGNEY, SC:   May it please the Court, I appear with MS S. G. CALLAN, for the respondent.  (instructed by the Commonwealth Director of Public Prosecutions)

FRENCH CJ:   Thank you, Mr Wigney.  Yes, Ms Abraham.

MS ABRAHAM:   As your Honours are aware, there are three grounds on which we seek special leave.  The common thread, in our submission, underlying the grounds is that with respect to the Court of Criminal Appeal, it did not properly perform its function as an intermediate appellate court.  Indeed, in our submission, in relation to the first ground, for example, what has been referred to as the “dividend” ground, the argument and the ground below was that a miscarriage of justice occurred as a result of the Crown proceeding on an erroneous legal basis. 

Indeed, the Crown chose to run its case with a motive.  It opened on the motive.  It was put as a matter of law and, in effect, dividend can only be paid out of cash profit.  You cannot have dividend or profit from unrealised capital appreciation.  In my submission, the court below accepts that there is no such blanket prohibition.  Indeed, my friends accept there was no such blanket prohibition although, my friends say it was a simplified version of the law.  In my submission, simplified, in this instance, has resulted in an erroneous statement of the law. 

GAGELER J:   Was it materially erroneous in the circumstances of the case?

MS ABRAHAM:   It was, in my submission, because the use that was made of the statement was to undermine the appellant’s evidence or the applicant’s evidence where he said there were substantial profits; he understood there were substantial profits and there was other evidence in relation to that.  He was asked at the end of the examination, no doubt because of the way the Crown had run its case, “Did you understand there to be any reason why you could not pay profits or dividend from unrealised capital appreciation?” and he said, “No.”  So, it was used to undermine him and discredit his evidence. 

So much is obvious, in my submission, from the cross‑examination passage we have in paragraph 10 of our submission which is at the end of page 125 of the application book.  At the end of cross‑examination, it was put as a basic principle.  So, in my submission, what was being put is, “It is a basic principle that you cannot obtain a profit from unrealised capital appreciation so basic you must be lying to us when you say you did not know that.”  Now, the issue with that is, that was the whole motive of the Crown case, that is, the dishonesty sprang from a knowledge by the applicant that he could not withdraw a dividend because unrealised capital on the Crown’s case could not be, as a matter of law, profit and used as dividend.

In my submission, what the court below did not do, it having found, in my submission, it is clear it proceeded on the basis there was no blanket rule.  Therefore, what has been put is an error.  In my submission, the next question the Court was required to ask is, did that give rise to a miscarriage of justice?

FRENCH CJ:   Just before you go there, what did the trial judge tell the jury?

MS ABRAHAM:   The trial judge repeated the Crown submission.

FRENCH CJ:   Can you take us to that passage? 

MS ABRAHAM:   Certainly.

FRENCH CJ:   You are relying on page 22 of the summing‑up, I think, at page 28 of the application book, are you?

MS ABRAHAM:   Yes, that is correct and that is a repetition of the Crown submission.

FRENCH CJ:   He says:

Because the properties, having only been purchased . . . had not in fact produced a profit no dividends could be paid out of the company.  It was in those circumstances the Crown contends –

MS ABRAHAM:   Yes, but in my submission, there is no doubt that it was put as a basis of principle because the word “principle” was used in the cross‑examination and the opening was on that basis, in my submission.  Prior to the basis of the Crown case, which is the words used by the Crown, or the essence of the Crown case, the Crown had said that the law requires profit, so it is in that context.  It is the law, not it is some factual thing relevant to this case.  The importance, in my submission, of the court having found an error is that the next question was, was there a miscarriage?  What that would involve is looking at the consequence and the consequence here involves looking at the use to be made, or the use that rather was made of the statement. 

The use that was made of the statement is, as we have set out in paragraph 10, to deprive the applicant of the force of his evidence that what you had is substantial profit and to, in effect, we would use the word “belittle” and, in my submission, exactly that.

GAGELER J:   If you look at page 102 of the application book line 50 ‑ ‑ ‑

MS ABRAHAM:   Sorry, line 50, yes.

GAGELER J:   ‑ ‑ ‑ fifty.  Is that a correct statement of the position?

MS ABRAHAM:   Is that the sentence in the ‑ ‑ ‑

GAGELER J:   “In his explanation”?

MS ABRAHAM:   He did not, when he gave his explanation say that, I agree, but what he did say in evidence was did he know any reason why it could not be paid as a dividend and he said, no he did not know.  Your Honour, the problem with paragraphs 49, 50 and, indeed, following, that instead of the court addressing the question of what use could be made – sorry, what use was made of the evidence, the court circumvented that.  Nowhere at all in this judgment is there a reference at all to the cross‑examination, the opening or closing address of the Crown as to what use it made of the evidence and, in my submission, the Court was required to do that. 

What the Court did instead is go around it.  So, in paragraph 49, for example, what the court has done is said, well it does not matter if there is an error if it was the applicant’s mistaken belief.  But the problem was it was not the applicant’s evidence.  He did not have a mistaken belief.  It was the Crown putting up the motive that they, in our submission, needed to get right.  As I said, the evidence was that he understood there was no reason why a dividend could not be paid.

As to the next paragraph, beginning of paragraph 50, what the Court has done, is said, in their view, it was “open to the jury to accept the Crown’s submission”.  But, your Honour, the submission is based on an erroneous proposition and how can the jury then accept that and how does one come to the conclusion in paragraph 50 because one has to have rejected the accused’s evidence, and how could you have done that if the rejection of the accused’s evidence is based on the erroneous proposition?

In my submission, one is dealing with two very different scenarios.  There are two different concepts.  You cannot as a matter of law have profit from unrealised capital.  Well you can, but it did not occur in this instance.  Now, that second is what the court has attempted to do.  It was the first that was rung.  It was the first that was put to the jury.  It was the first that was put to the accused in cross‑examination.  So, if the correct law was put, the cross‑examination as it occurred – for example, that passage we have referred to – could not have existed, could not have occurred.

In fact, when the applicant said, “I understood that it could be profit”, the response to that would have to be yes, he is right about that.  It can be in certain circumstances.  So, what the court has done, as I said, instead of asking the question it should have asked, the miscarriage, and instead of referring to the evidence and the use that was made of it, totally ignored that.  Did 49 and 50 which we say are plainly error and then, in effect, reverse the onus on the applicant.  It is for the applicant to prove somehow it was able to be paid as a dividend, but it was not the applicant’s case.

FRENCH CJ:   But when you talk about reversing the onus, are you referring to paragraph 86 of the judgment?

MS ABRAHAM:   They did that separately in a different context.  In our submission, they reversed the onus more than once during this judgment.

FRENCH CJ:   What is the reversal of onus in this context?

MS ABRAHAM:   In my submission, the bottom of paragraph 50 in the context in which – I have taken the Court to 49 and 50 – well, it does not matter.  The accused has not demonstrated is my words not the judge’s, but the accused has not demonstrated that he could have.  He did not say he could have got it by dividend.  Then, for the Court to proceed with an analysis not based on the Crown case, paragraphs 51 onwards was not the Crown case, my friends accept it was not the Crown case. 

There was no specific evidence.  There was no accounting evidence led as to dividends, let alone interim dividend not being able to be paid, in my submission.  So, what the court has done is said, well, look, we will work it out for ourselves even though that was not the evidence that was led, that was not the purpose of the evidence led, we will go through and work out whether we think dividend could be paid.

FRENCH CJ:   How long after the acquisition of the properties were these payments made?

MS ABRAHAM:   A few months; three or four months, I think it is.

FRENCH CJ:   Did anybody know anything about whether they are going to yield a profit?

MS ABRAHAM:   Your Honour, all the evidence before the Court was that they had gone up substantially in value.  But, in my submission, it is what use was made of the statement.  So, in terms of the credibility of the accused it is put to him, in effect, it is so basic, you must have known that you could not do it.  As a matter of law, that is not right.

FRENCH CJ:   There seems to be an error of unreality about this when one links it up to the facts.

MS ABRAHAM:   But, your Honour, in my submission, an applicant is entitled to have his case, the ground of appeal that he raises, dealt with.

FRENCH CJ:   He was paying himself a spotter’s fee, was he not?

MS ABRAHAM:   He got advice that it could be described, in effect, as a spotter’s fee.  He went to his accountant or his auditor, he and Mr Quigley, and in my submission, that fact in itself and the significance of it was never addressed.  In my submission, it would be wrong to approach this matter by saying, well hold on a second, it seems incredible that he could have thought this.  In my submission, there was evidence there.  He gave evidence and, in my submission, regardless of that, a Court of Appeal is required to address the grounds of appeal.  It did not.  The Crown is required if it is going to come up with a motive, put it accurately in law.  If it does not, then the Court is required to look at the consequences and it did not.  So, he has not had his grounds dealt with as he is entitled to do so in my submission that ground was not dealt with at all. 

In relation to the Angas point, the second point, the argument there as your Honours can see from our submissions very simply is that it was argued below that where the company was solvent, there was authority and there was no detriment to the company.  The factors that were referred to in dicta in Angas are relevant and would render the conduct not improper.  If it cannot be improper, then clearly it cannot be dishonest.  What the court below did very simply is say well no, no Macleod applies, it is dishonest, therefore, Angas is to be distinguished.  In my submission, that is an incorrect approach, but more significantly there was no analysis.  There was no analysis of the difference of the offences charged. 

The offences in Macleod were offences of property offences, taking property from the company.  The offences in this case were offences akin to the Angas ones namely, using the director’s position.  There is no analysis of the different considerations that might inform the different defences, in my submission.  There is no analysis of the court’s comments in Angas of the limited qualification of Macleod.  Quite to the contrary, without any analysis, what this Court has done, rather the Court of Criminal Appeal has done in this case has been to, in effect, broaden the qualification in Macleod, so that whenever there is an allegation of dishonesty those factors, solvency, authorisation and the like, are out of there because Macleod applies.  They have done that with no analysis and, in my submission, given that Macleod was talked about as a qualification in Angas, it is clearly a point of special leave that an intermediate appellate court ought not, without analysis of the relevant differences, simply extend the application of the principle which, we say, does not extend.

GAGELER J:   Suggesting they should use more words?

MS ABRAHAM:   We suggest that they should actually address the issues.  In my submission, there are significant differences between a 173 offence which was Macleod and a 184 offence which was this; not mentioned the differences, in my submission.  If you are going to, in my submission, reject the ground of appeal, one is required to at least analyse what the difference is.  It cannot simply be, you allege dishonesty, you are in the Macleod territory because the irony of that would be on these facts if this applicant was charged under 182, then what would happen is that the relevant facts, according to the Court of Criminal Appeal, solvency and authorisation, would all be relevant. 

So, the conduct might not be improper but simply because there is dishonesty, it could fall within the dishonesty category and, in my submission, that cannot be right.  There needs to be more than simply an allegation of dishonesty.  The third ground relates to unsafe and, in our submission, the court clearly did not undertake the task that it was required to in this instance.  It reversed the onus and it did not address the major arguments.

FRENCH CJ:   This reversal of the onus is the one at 86, is it not?

MS ABRAHAM:   Paragraph 86, yes and can I ‑ ‑ ‑

FRENCH CJ:   Does that not just say that there is not a logical engagement between one set of propositions and the other?

MS ABRAHAM:   No.  In my submission, what the court has done, and one looks at 85, is list a number of factors and can I – the applicant’s case involved far more than that.  The applicant’s case on appeal, on the unsafe argument, involved relying on aspects of Bunter’s evidence in cross‑examination which included that the purposes for which the payments were made, that is, the distribution of profit and for work done were not inappropriate purposes.  The Crown relied on documents that were tendered that clearly do support the applicant and, indeed – sorry, the applicant relied on documents and indeed, the applicant relied on the unreliability of Bunter.  So, what seems to have happened here is that the Court of Criminal Appeal has pulled out what it considered was the defence case and said, well, that part does not answer the Crown.  In my submission, when you are doing an unsafe exercise, it is not a question of working out well that is the positive defence case that is what came from the accused; does that answer the Crown?

What it shows, in my submission, by taking that approach is that the independent examination that is required of it was not taken.  In my submission, it is also revealed in paragraph 95 with the reversal of the onus the reference in relation to Bunter, for your Honours to appreciate the context, Bunter’s evidence was critical at the trial.  It was relied on by the Crown, the jury had to accept Bunter, in my submission and it was not suggested otherwise.  Yet, despite that, all we have about Bunter’s evidence is there is a bit of difficulty with recollection, all the rest of it, and no motive was put.  No motive was put reverses the onus, in my submission, that breaches Palmer.  It clearly is giving credibility to Bunter by reasoning in a reverse way. 

That, in my submission, is totally inappropriate.  A jury could not do that.  No appellate court should do that or could do that.  But what is more, there were a number of arguments in relation to Bunter.  A number of arguments about his credibility, about inconsistencies in his evidence, none of those are referred to in the judgment.  There was an argument about, as your Honours will have seen, an email of 20 October.

FRENCH CJ:   Paragraph 96, at page 116, I think.

MS ABRAHAM:   Yes.  That is all very well and good to say that, but there are aspects in the email that clearly support the applicant and are inconsistent with Bunter’s evidence, namely, that the money can come from one vehicle, one company.  That is not referred to at all.  Indeed, in my submission, there is no reference at all in this judgment to the arguments and the evidence put in relation to the only element of the offence in issue

and that was dishonesty.  My friends have not, in their submissions, pointed to any aspect of the judgment that supports that such analysis was done. 

I am not suggesting that every single aspect has to be – every single argument that is put – has to be dealt with, but at least one, with respect, should have been dealt with, in our submission, none on that issue were dealt with.  Rather, what the court has done here is say, “Look, here is the document, the prospectus” then speculated about that, with respect, we say inappropriately, and then said “Well, the prospectus is wrong, it is false, therefore.”  Your Honours, there is an argument below quite properly that the evidence in relation to the prospectus – I have to say the other documents the applicant did not write and there is no evidence that he did or gave instructions about – but the prospectus, he said, he understood that was the evidence, the advice of Mr Bunter. 

If that was the advice of Mr Bunter then the prospectus does not have the significance that it is said to have.  Now, that is not referred to in my submission anywhere.  That is a significant matter.  So, the issue below was credibility.  They had to accept Mr Bunter as credible and reliable and, in my submission, the documents cannot help that because if they were done then it does not assist in resolving the issue of the credibility and reliability of Mr Bunter. 

So, in my submission, in relation to these three grounds, the Court of Appeal has not addressed the grounds of appeal.  It has done it in a way, in my submission, that not only gives rise to interests of the applicant in the matter being granted special leave, but far broader than that.  To have a Court of Appeal, with respect, not to refer to evidence and arguments of the vital ground of appeal, to have the Court of Appeal reverse the onus, in effect, why would he lie?  To have the Court of Appeal not address what they accept is an error on the basis upon which the Crown presents its case, in my submission and indeed, in our submission, to extend without analysis Macleod, to do so is clearly an error but it clearly raises issues of general importance. 

This judgment and the reasoning involved in this judgment can be applied elsewhere.  In my submission, it ought not, because it is plainly wrong.  The applicant was entitled to have his grounds heard and dealt with properly.  They were not.  Those are my submissions.

FRENCH CJ:   Thank you, Ms Abraham.  Mr Wigney, we will just hear you on the first ground, I think.

MR WIGNEY:   Well, your Honours, essentially our response to that first ground is that despite the somewhat highfalutin way in which the proposed special leave question has been framed, when one actually looks at the evidence and findings made below, the question does not properly arise.  I think as your Honour, the Chief Justice said, there is an air of unreality about the submission that is now made.  We agree.  Indeed, there is such an air of unreality about it that, as the Court of Criminal Appeal found, this point was not raised at all at trial either by way of objection to the questions in cross‑examination that the Court has been taken to or, indeed, in relation to the summing up and the passages of the summing up that your Honours have been taken to which I will come to in a moment which were perfectly correct. 

But no point taken at the trial below and that is because when one actually looks at the facts and the evidence below, these points do not arise.  Perhaps the clearest way to put that is that the ground of appeal and the special leave question that is based on this accounting issue is that the whole trial proceeded on an erroneous legal basis and, in our respectful submission that is simply wrong.  Their case did not proceed on an erroneous legal basis having regard to the facts and the evidence that were before the Court.  The relevant legal principles concerning the circumstances where unrealised capital gains may form part of a company’s profits are set out in the Court of Criminal Appeal’s judgment at 52 to 56 pages 103 and 104 of the application book. 

Now, I do not need to take your Honours to those passages because essentially they are accepted.  They are certainly not challenged by the applicant in these proceedings on this application.  But the significant point is this, your Honours, that the Court of Criminal Appeal found, in our respectful submission, that applying those principles to the evidence at trial, demonstrated that first, at the time that the payments, the subject of the charges were made, the relevant companies in the Fincorp Group had not, in fact, earned or declared a profit of any sort.  It followed that they were not able to pay a dividend or even an interim dividend and, indeed, and it follows had not, in fact, paid, or purported to pay a dividend or an interim dividend. 

The point is simply this.  To the extent that the authorities referred to by the Court of Criminal Appeal in those passages of the judgment establish that in some circumstances a revaluation of fixed assets may give rise to profits distributable by way of dividends, the unequivocal evidence at the trial was that those narrow set of circumstances had not arisen.  The relevant properties that had been acquired during the financial year had not been re‑valued in the accounts, nor could they have been because the undisputed accounting evidence that was led in relation to that was that those properties could not be re‑valued in the accounts because by way of accounting convention and under the relevant accounting rules, as real property they could only be valued at the lower of cost and net realisable value, which means they could not have been re‑valued in the accounts. 

There had been no resolution of the directors in relation to revaluation as required.  I am not going to take your Honours to all of the evidence, but that is another essential step for unrealised capital gains to, in fact, amount to profit.  There had been no transfer of any increase in the valuation of the assets to the profit and loss account.  Indeed, the evidence was that the group accounts at year end did not reveal a profit and, indeed, disclosed in the notes that because of that accounting convention that I referred to earlier, the properties could not be re‑valued because they were to be valued at the lower of cost end net realisable value. 

What follows inevitably from that, in our respectful submission, your Honours, is that to the extent that the Crown submission was to the effect that dividends were not payable at the time these payments were made and that the applicant’s knowledge of that explained why he caused the company to pay him these amounts in what was plainly a dishonest way that submission was open on the evidence because dividends were not, in fact, payable.  Whatever the intricacies of the law, the circumstances had not arisen.  No one even attempted to demonstrate any evidence that they had.

The fact that those circumstances might have given rise to a revaluation and of profits if a whole different series of circumstances had existed really is entirely irrelevant.  So what is being raised here is essentially a false issue that just did not arise at all on the facts and evidence that were at trial.  In a sense, that may very well explain why none of these points were raised with the trial judge objecting to the passage of the cross‑examination that is now sought to be impugned, seeking a redirection or the like.  Can I take your Honours to the passage of the summing‑up that my learned friend took your Honours to, to demonstrate this point, page 22 of the summing‑up, page 28 of the appeal books.  This is reciting the Crown’s submission:

Once the properties had been purchased Mr Crown submitted to you that Mr Krecichwost realised that the properties had increased in value and notwithstanding that no profits had actually been realised –

Correct, no profits had been realised –

he determined to take money out of the company for his own advantage.  Because the properties, having only been purchased in July and August 2003, had not in fact produced a profit no dividends could be paid out of the company.

A correct statement having regard to the evidence and the facts as found –

It was in those circumstances the Crown contends that what it calls a device of using commission fees or spotter fees was used –

et cetera.

FRENCH CJ:   Was there any attempt to characterise this payment as a dividend?

MR WIGNEY:   No, not at all.  That is the point that I think his Honour was endeavouring to address in one of the other passages, I think, my learned friend took your Honour to in CCA judgment.  So it is an entirely false issue, never arose on the facts and to the extent that these cases demonstrate that in some circumstances, unrealised capital assets may give rise to a profit that may be then distributed by way of dividend, just never arose at the trial, never arises on the facts.  That is why it was not raised by very experienced trial counsel before his Honour.  That is why it just does not raise a point worthy of consideration by this Court.

FRENCH CJ:   Thank you, Mr Wigney.  Yes, Ms Abraham.

MS ABRAHAM:   Your Honours, my friend very much relies on the fact the point was not taken below.  Well it was not taken below.  In my submission, that cannot undo what is a legal error on the part of the Crown.  Ideally, it should have been taken.  It was not.  But it was not an argument on appeal about directions which the Court of Criminal Appeal seems to think it was an argument about a miscarriage from the error.  This Court has always recognised there will be cases where points are not taken that nonetheless an appeal is allowed because of a miscarriage of justice.  But the problem with that is this Court did not address the miscarriage.  Quite to the contrary, as I have said, this Court did not look at the consequences of the error and so that part was not addressed, in my submission. 

Secondly, my friend relies on the factual findings of the court below.  Well, unfortunately for my friend, that was on a different case.  That was not the case my friend ran below.  It was not the case put to the accused.  The accused was never asked about valuations and what he believed about valuations and minutes and the like.  No evidence was ever led by the Crown to seek to set out that dividends were not paid and could not be paid either on an interim or final basis.  I note my friend says there was no attempt to prove that dividends could be paid.  Well, unfortunately, my friend has just reversed the onus yet again.  In my submission, it was not for the applicant to prove dividends could be paid, it was the Crown who said they could not. 

The accused’s evidence was belittled because he had the gall, with respect, to suggest that there is such a thing as unrealised capital.  In my submission, he was entitled to have his ground and the effect of that erroneous principle considered by the court below.  My friend says well hold on a second, the court below found there could not be any dividends, even interim dividends.  Well actually the court below did not refer to interim dividends, did not address it at all.  So what they have done is not on any evidence led for the topic, recast the Crown case, sift through the evidence, tried to work out whether they thought dividends ought to be paid which, in my submission, cannot undo the legal proposition. 

My friend says it seems to be a matter of fact.  I am not quite sure how fact comes within the word “principle”.  What was cross‑examined about was a principle, a legal principle.  The jury understood, or would have understood on the way it was conducted that this case was you cannot get a profit from unrealised capital and with respect to my friend there is no transcript reference in his written submissions, there is nothing in the Court of Criminal Appeal that supports his argument that this was not put as a matter of law; quite to the contrary.  If we were wrong about our legal proposition that we set out to establish below, we would have been out of there in two seconds because it would be - the following passages which we relied on did not establish the point. 

That is not what the Court of Criminal Appeal has found.  Clearly, it was correct, the principle was put, in my submission, and the court did not deal with that error.  This Court, in my submission, ought to grant special leave to ensure that the appropriate approach to dealing with a ground of appeal – an applicant is entitled that the ground of appeal alleged be dealt with and that a Crown, with respect to my friend, cannot alter its case on appeal to get around, with respect, what was in error below.  Those are my submissions.

FRENCH CJ:   Thank you.

In our opinion, the prospects of success in this case do not warrant the grant of special leave.  Angas Law Services Pty Ltd (In Liquidation) and Carabelas (2005) 226 CLR 507 does not affect the continuing authority in Macleod v The Queen (2003) 214 CLR 230. The simplified explanation of corporations law given to the jury was not erroneous in the circumstances of the case. The Court of Appeal did not proceed on the basis that there was an onus of proof on the applicant. The application for special leave will be refused.

AT 12.29 PM THE MATTER WAS CONCLUDED