Love v ASC

[2000] WASCA 404

LOVE -v- AUSTRALIAN SECURITIES COMMISSION [2000] WASCA 404

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASCA 404
Case No:	SJA:1160/1998	Heard:	21 JANUARY 2000
Coram:	OWEN J	Delivered:	18/12/00
No of pages:	28	Judgment Part:	1 of 1
Result:	Leave to adduce fresh evidence refused Appeal dismissed
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Parties:	ROSS MAITLAND LOVE AUSTRALIAN SECURITIES COMMISSION
Catchwords:	Corporations Keeping of accounting records Appeal against conviction under Corporations Law Whether company's recordkeeping failed to comply with Corporations Law requirements Whether Magistrate's reasons sufficiently reveal bases for findings and conclusions No need for Magistrate to provide definition of adequate recordkeeping Practice and procedure Application to adduce fresh evidence Fresh evidence did not give rise to any real possibility that proceedings below would be different
Legislation:	Corporations Law, s 289(1)
Case References:	Australian Electrical Electronics Foundry & Engineering Union Western Australia Branch v Hamersley Iron Pty Ltd (1998) 19 WAR 145 Biogen Inc v Medeva PLC (1996) 36 IRP 438 Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 Frichot v Zalmstra, unreported; FCt SCt of WA; Library No 981291; 13 May 1998 Goldsmith v Sandilands & Ors [2000] WASCA 18 Australian Securities Commission v Fairlie (1993) 11 ACLC 669 Duke Group (in liq) v Pilmer & Ors 15 ACSC 255 Gray v Motor Accident Commission (1998) 73 ALJR 45 Harling v Hall (1994) 94 ACR 437 Hart v Herron 1996 Aust Torts Reports 81 Manning v Cory & Anor [1974] WAR 60 Mickelberg v R (1989) 167 CLR 259 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306 Van Reesema v Flavel (1989) 7 ACLC 972

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : LOVE -v- AUSTRALIAN SECURITIES COMMISSION [2000] WASCA 404 CORAM : OWEN J HEARD : 21 JANUARY 2000 DELIVERED : 18 DECEMBER 2000 FILE NO/S : SJA 1160 of 1998 BETWEEN : ROSS MAITLAND LOVE

Appellant

AND

AUSTRALIAN SECURITIES COMMISSION
Respondent

Catchwords:

Corporations - Keeping of accounting records - Appeal against conviction under Corporations Law - Whether company's recordkeeping failed to comply with Corporations Law requirements - Whether Magistrate's reasons sufficiently reveal bases for findings and conclusions - No need for Magistrate to provide definition of adequate recordkeeping

Practice and procedure - Application to adduce fresh evidence - Fresh evidence did not give rise to any real possibility that proceedings below would be different

Legislation:

Corporations Law, s 289(1)

(Page 2)

Result:

Leave to adduce fresh evidence refused

Appeal dismissed

Representation:

Counsel:

Appellant : Mr J B Hedges
Respondent : Mr P N Bevilacqua

Solicitors:

Appellant : Bruce Havilah & Associates
Respondent : Commonwealth Director of Public Prosecutions

Case(s) referred to in judgment(s):

Australian Electrical Electronics Foundry & Engineering Union Western Australia Branch v Hamersley Iron Pty Ltd (1998) 19 WAR 145
Biogen Inc v Medeva PLC (1996) 36 IRP 438
Commonwealth Bank of Australia v Quade (1991) 178 CLR 134
Frichot v Zalmstra, unreported; FCt SCt of WA; Library No 981291; 13 May 1998
Goldsmith v Sandilands & Ors [2000] WASCA 18

Case(s) also cited:

Australian Securities Commission v Fairlie (1993) 11 ACLC 669
Duke Group (in liq) v Pilmer & Ors 15 ACSC 255
Gray v Motor Accident Commission (1998) 73 ALJR 45
Harling v Hall (1994) 94 ACR 437
Hart v Herron 1996 Aust Torts Reports 81
Manning v Cory & Anor [1974] WAR 60
Mickelberg v R (1989) 167 CLR 259
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) (1999) 73 ALJR 306
Van Reesema v Flavel (1989) 7 ACLC 972

(Page 3)

1 OWEN J: This is an appeal by leave from the decision of a Magistrate in the Court of Petty Sessions convicting the appellant of an offence under s 591(1) of the Corporations Law (WA) ("the Law").

Background

2 The appellant is the director of three companies, forming the "Love Group" of companies, one of which is a company called Kazhak Pty Ltd ("the Company"). In early 1986 the Company began construction of a caravan park in Fremantle. The caravan park was subsequently registered as the Fremantle Village and Chalet Centre ("the Caravan Park"). The Caravan Park was completed around late 1986 to early 1987 and opened for business at that time. It continued operating under the appellant's direction until Barry Honey and Alan Ledger of KPMG Peat Marwick were appointed as receivers and managers on 23 April 1993.

3 The respondent, now the Australian Securities and Investments Commission ("ASIC"), lodged a complaint on 4 June 1996, charging the appellant with failing to take all reasonable steps to secure compliance by the Company with s 289(1) of the Law, contrary to s 591(1) of the Law, between 23 April 1991 and 23 April 1993. Section 289(1) of the Law provides that:

"A company shall:

(a) keep such accounting records as correctly record and explain its transactions (including any transactions as trustee) and financial position; and
(b) so keep its accounting records that:
(i) true and fair accounts of the company can be prepared from time to time; and
(ii) its accounts can be conveniently and properly audited in accordance with this Law."
4 Section 591(1) further provides that:

"If:

(a) a provision of s 289 was not complied with, in respect of a company to which this section applies, during the whole or any part of the period of 2 years immediately

(Page 4)

preceding the relevant day or the period between the incorporation of the company and the relevant day, whichever is the shorter; and

(b) the company was at any time during that period, or became at a later time, a company to which this section applies;

a director of the company who failed to take all reasonable steps to secure compliance by the company with the provision throughout that period … contravene[s] this section."

5 Under s 591(2), it is a defence to the above charge "if it is proved that the [director] had reasonable grounds to believe and did believe that a competent and reliable person was charged with the duty of seeing that that provision was complied with and was in a position to discharge that duty".

6 The charge was heard over several separate sittings in the Court of Petty Sessions, during 1996, 1997 and 1998. The learned Magistrate found the charge proven. The appellant was convicted of an offence against the Law and ordered to pay a $1,500 fine plus $7,000 of the respondent's costs.

The Proceedings before the Magistrate

7 The Magistrate heard evidence as to the running of the Caravan Park and its related accounting records. In particular, this evidence was given by a Mr Hoger, a manager of the Caravan Park between 1987 and 1993, a Mrs Weedon, the Caravan Park receptionist from July 1991 onwards, and the appellant. Opinion evidence was presented on behalf of both parties by several accountants who had assessed the Company's accounting records and considered whether those records complied with the requirements of s 289(1) of the Law. Two ASIC investigators involved in the seizure of documents relating to the Company's recordkeeping also testified.

8 The Magistrate described the business of the Company as follows (Appeal Book 84):

"The basic business of the Company was to earn income from the letting of accommodation sites at its South Fremantle premises which involved the regular taking of monies on deposit, key monies, cash for the use of electricity and

(Page 5)

telephones and payments by customers for accommodation. Regular and common expenditure included payment of various authorities for electricity, water, rates and charges such as rubbish disposal, telephones and expenditure on wages and maintenance of the company's assets. Most of the Company's income was cash and it had a high frequency of transactions most of which were of a repetitive nature involving, in turn, regular and frequent clearing of cash receipts and banking and the payment of accounts. In the course of such trading, the Company's employees (in particular Mr Hoger and Mrs Weedon) kept various records being day books, work books, a guest register, a rent receipts book, records for electricity usage, bank deposit books, bank passbooks and wages books."

9 The appellant argued that the accounting records were kept in such a way as to satisfy the requirements of s 289(1) of the Law. The appellant also referred to records of cheque transactions by the Company in payment of various expenses, records of payments made on the Company's behalf by the other Love Group companies in those other companies' ledgers, the production of draft accounts from time to time (including annual profit and loss statements and balance sheets up to the end of the 1992 financial year), and the maintenance of a cashbook. These, the appellant argued, also constituted evidence of the Company's compliance with s 289(1).

10 The appellant claimed he took all reasonable steps to ensure the Company's compliance with s 289(1). He pointed to his evidence that he was in regular contact with the Company's employees regarding the running of the business, attended the Caravan Park at least weekly, periodically inspected the records (which he says he had instructed the Company's employees to keep), and had prepared draft financial statements from the commencement of the Company’s trading to the end of the 1992 financial year. In addition, the appellant had engaged an accountant, a Mr Levi and then a Mr Brouwer, to organise the annual returns of the Love Group companies for the years 1986 to 1992 inclusive.

11 Levi was first retained by the appellant in about September 1988, although his first contact with the Love Group of companies was about a year earlier, when he carried out a "quick review" of the group’s financial affairs and securities for the Commonwealth Bank. The appellant asked Levi to do the group's accounts, including an accounts reconstruction for the Company for the financial years ending 1986, 1987 and 1988. Levi

(Page 6)

employed Brouwer in 1988, who did most of the work in relation to the Love Group, under Levi's supervision.

12 Levi ceased acting for the appellant in January 1991, due to the appellant's failure to pay his fees. Brouwer left Levi's employment during 1992 to commence his own practice. He met with the appellant in August 1992, who then asked him to complete the Love Group’s outstanding tax returns for 1989 to 1992. Brouwer had not prepared the Company’s tax returns for 1989 to 1992 by the time the receivers and managers were appointed in April 1993.

13 The appellant also raised the defence provided for in s 591(2) of the Law, claiming that he held a reasonable belief that competent and reliable people were ensuring that the Company records complied with s 289(1). The appellant said he employed Hoger, Weedon, Levi and Brouwer to attend to the Company's recordkeeping and accounting needs. He argued that his inspection of Hoger and Weedon's records and the work done by Levi and Brouwer gave him reasonable grounds to believe that they were competent and reliable people, undertaking the duties necessary to ensure compliance with the Law.

14 The appellant's evidence was contradicted in part by some of the other witnesses. The inconsistencies between the evidence of the appellant and that of Hoger and Weedon are highlighted in the following exchange between the appellant and counsel for the respondent (AB 784 - 786):

"Now, you've heard Mr Hoger say before that it was his idea to commence those [record] books and start them up. Now, he's got that wrong has he?---He has.

That was your idea?---My idea that they be opened.

All right?---He implemented the opening of them.

All right. Your idea. Now, he also says that you never looked at any of those books ever. He's got that wrong as well?---He is incorrect, yes.

All right. You heard Ms Weedon say that you never asked to see any of the records. She's got that wrong too?---She's incorrect in that respect.

(Page 7)

All right. Mr Hoger says that initially he may have seen you once every couple of weeks, and then towards the end, prior to the receiver/manager being appointed, he saw you about once a month. Now you've told us differently … So Mr Hoger’s got that wrong as well?---Yes, I attended the caravan park at least weekly - -

All right, all right, at least weekly?---Yes.

We've heard your evidence on that. So Mr Hoger's wrong there again? Now Ms Weedon says that she spoke to you about two or three times - - sorry, once every two or three weeks, so she’s got that wrong as well?---Yes.

All right, and she said that you - - ?---I would have spoken to her at least once a week.

She said that you just wanted to know the occupancy rates and the amount of money that had been banked?---In principal that’s correct, that’s what I rang her at least once a week for, to get the occupancy rates - -

All right?--- - - and get the - - the rent - - the money.

All right, she says once every two to three weeks and she’s wrong?---She’s wrong, that's - -

Okay?---Once every week is correct. Once every two to three weeks is incorrect.

Now, Mr Hoger says that there was no regular contact as such, by - - by the fax or post or by the phone, and he said that you would contact them when there were problems only. He's got that wrong as well?---Yes.

All right. And Ms Weedon says she doesn't recall sending you anything. She's got that wrong too?---She's got that wrong.

All right. Now, she - - don't you think, Mr Love, that if Ms Weedon had been sending you weekly, or more than weekly reports like you say, that she would remember that?---Yes, and I've given evidence - - I've shown you where she has done, yes.

All right. Now, you've shown us where you've - - you've said you've received pages from a diary?---Yes.

(Page 8)

And you've shown us a couple of them?---Yes. There's many more of them if you wish them.

And - - Ms Weedon said that she didn't send you anything, so she's got that wrong?---She's got that wrong, yes.

All right. Mr Hoger said that there was no petty cash expense book prior to the receiver/manager being appointed. He's got that wrong as well?---Yes.

… "

15 The appellant’s evidence also partially conflicted with that of Levi. Levi said that he spoke to the appellant of his concerns about the Company's accounting practices and of the importance of keeping general ledgers and journals. He also said he advised the appellant to engage the ongoing services of an accountant to maintain proper Company records, recommending a Mr Sharbanee for that purpose. The appellant went on to appoint Sharbanee to maintain computer records only in respect of the other two Love Group companies. He claimed, however, that Levi never voiced concerns about the Company but simply suggested that there were some minor areas of the books that could be improved upon.

16 Levi testified that he was instructed by the appellant only to do the Company’s annual returns. The appellant disagreed (AB 807 - 808):

"Mr Love, you appointed Mr Levi to prepare annual returns?---Yes.

You appointed Mr Sharbanee to maintain computer records in respect of [the other two Love Group companies]?---Yes.

You did not maintain - - retain - - Mr Levi to produce books and records of Kahzak?---I did.

Other than annual returns for the purposes of lodgment with the - - at the time, the National Companies and Securities Commission and with the Tax Office, other than that?---I employed him to maintain and prepare the balance sheets and profit losses and the records of the accounts to meet the requirements of the Australian Securities and the Australian Taxation Department and all authorities.

(Page 9)

So, sorry, if I could clear that up. By that do you mean annual returns?---Annual returns, company taxation, Australian Security requirements, the Companies Act requirements - -

All right. If I could stop you there. When you say Companies Act requirements, in respect of what?---All of the Act itself. Any area that - -

Okay?--- - - that the company required to meet its obligations.

So you instructed Mr Levi to prepare cash receipts journals, cash payments journals, ledgers?---No.

No. You didn't, did you?---He didn’t prepare the primary account documents because that is done by the staff that operate it.

All right. So you - - so if I say to you that Mr Levi says - - or Mr Levi did say that all that he was retained to do was to prepare the annual returns for the purposes of the Company's Commission and the Tax office, and he maintains that's all he was required to do?---Yes.

He's got that wrong?---No. He’s got - -

Oh, so he's right?---No, he was required to do that task definitely, and if he had any feelings that the base records to prepare those documents were not in order, he would have then put those in place and made a recommendation to do so.

…

I'm not talking about what he would have done, I'm talking about what he was instructed to do?---He was instructed to do that. That was his instructions to do.

So Mr Levi's lying when he says he only prepared annual returns, he was only instructed to prepare annual returns?---If that's what you're saying, Mr Levi is not telling the truth."

17 In addition to the evidence of Levi, Brouwer and the appellant, the Magistrate heard expert evidence from three chartered accountants as to whether the Company was complying with s 289(1) of the Law during the relevant time. Those three accountants were: Ms Inglis, who was

(Page 10)

involved in the management of the Company's business after 23 April 1993, Mr Honey, the Company's Receiver Manager, and Mr Coates.

18 According to the Magistrate (AB 83 - 84):

"In broad and simplified terms, this body of opinion evidence falls into two categories, the first (Honey, Inglis and Levi) saying that the [C]ompany's accounting was seriously deficient in areas such as reconciliation procedures, proper recording of expenses paid from cash takings, and recording evidence of payments made on behalf of [the Company] by other companies under the [appellant’s] control constituting loans to [the Company] and the recording of repayments of such loans by [the Company], and the second (the [appellant], Brouwer and Coates) saying that [the Company's] accounting procedures, although imperfect, were adequate … and complied with s 289(1)."

19 The Magistrate also heard from the two ASIC investigators, a Mr Andrews and a Ms Brennand, involved in the seizure of documents relating to the Company's recordkeeping. In particular, they gave evidence that on 21 October 1994 they served a notice on the appellant and his wife for production of all books and records in their possession relating to the Company. On that date the appellant handed over the Company's cash book (Exhibit 19). Andrews noticed the cash book was written up from 1986 to June 1989, and pointed this out to Brennand. The cash book was then handed back to the appellant with an arrangement that Andrews and Brennand would return four days later to collect the book and other documents relating to the Company. Upon their return the appellant produced various manilla folders and lever arch files, and the cash book with some deposit books. Andrews and Brennand re-examined the cash book, and both noticed that it then contained entries to 23 April 1993 and that some entries were repeated. Brennand was shown the cash book during cross-examination and testified that there were 12 blank pages between the last entry she had seen on the first visit to the appellant's office and the next entry which she noticed on the second visit, and that the next entry started in 1988. Brennand gave evidence that the 'new' entries looked "graphically" different from the previous entries, in terms of the visual style of writing and the ink used (AB 504 - 506). Both Andrews and Brennand testified to being sure that they were not mistaken about the dates to which the book was entered up to on the first and second occasion they saw the cash book and that they did not overlook the 'new' entries on the first occasion.
(Page 11)

20 The appellant was asked to explain to the court why certain periods of the cash book were repeated. The appellant's initial response was that he couldn't explain it at all. He then said that "the only explanation [he could] give" was that the book was in Levi's possession from around July 1989 to some time in 1992, and that when he retrieved it from Levi he 'updated' the book for Brouwer, and must have inadvertently started again from 1988 (AB 788 - 9).

The Magistrate's Reasons for Decision

21 The learned Magistrate identified each element of the offence with which the appellant was charged and accordingly determined whether each had been established by the respondent beyond reasonable doubt. Those elements were:

(i) the appellant was, at the material time, a director of the Company;

(ii) the Company was a company to which s 591 of the Law applied;

(iii) the Company failed to comply with s 289(1) of the Law during the relevant time; and

(iv) the appellant failed to take all reasonable steps to secure the Company's compliance with s 289(1) of the Law.

22 That the appellant was a director of the Company, a company to which s 591 of the Law applied, was not disputed.

23 The Magistrate considered that the question of the Company's compliance with s 289(1) related directly to its records and the manner in which they were kept by its employees and the appellant. He looked to the evidence of Hoger, Weedon and the appellant, much of which was corroborated by documentary exhibits, as to what constituted the Company's records. He commented that "there [was] persuasive evidence that [a number of the books] were conscientiously written up [by Hoger and Weedon] to record the various transactions of [the Company] including those during the relevant periods" (AB 83). He also made reference to those areas of the Company's recordkeeping which the prosecution submitted as showing serious deficiency, including a lack of reconciliations and failure properly to record expenses paid from cash takings and payments made by the Company to the other Love Group companies, constituting loans to the Company and repayments of those amounts by the Company.

(Page 12)

24 The Magistrate went on to observe that whether the Company's non-compliance with s 289(1) during the material time had been established depended largely upon the opinion evidence. Recognising the conflict between the two bodies of opinion evidence, the Magistrate explained that he had "analysed and considered the weight of each part of that evidence in the light of the documentary exhibits to which it refer[red]" (AB 87).

25 The Magistrate particularly favoured the evidence of Honey, who gave detailed observations as to the Company's system of recordkeeping and its deficiencies. He did not accept the appellant's submission that Honey's evidence was inaccurate as to the Company's records because his opinion was founded only upon documents seized by the respondent and Ms Inglis (AB 88):

"Although it is clear that [the respondent] did not seize all invoices and primary records I am confident that Mr Honey's opinion was founded upon a direct inspection of all the documents mentioned in his testimony and that it does not depend for its accuracy upon direct personal access to every single figure. Mr Honey's qualifications and experience are very considerable and I accept that he was able to form an accurate opinion of the state of [the Company's] books from both an accounting and auditing point of view from the information provided to him."

26 The Magistrate also rejected the appellant's implication that Honey's opinion was "coloured by animosity alleged between himself and the [appellant] arising from their various disputes over the receiver managership", instead finding Honey's evidence to be "unemotive and impartial".

27 In contrast, the Magistrate questioned the reliability of the evidence of Coates. The Magistrate acknowledged Coates' experience and qualifications but noted that "some of his opinions depended upon assumptions that certain procedures were followed" and that "he had relied upon assurances by [the appellant] of the existence of petty cash books, vouchers and savings bank deposit books, not having examined such documents himself" (AB 88 - 9). The Magistrate found, on the evidence of Andrews and Brennand, that the appellant had attempted to alter the Company’s cash book between 21 and 25 October 1994. The impact of that finding on the appellant's credibility then "create[d] difficulty in accepting that the information given to Coates by him on that

(Page 13)

and other aspects of the accounts [was] reliable" (AB 89). The Magistrate stated that that finding also caused him to prefer the evidence of Hoger and Weedon over that of the appellant, where there were conflicts between the two.

28 The Magistrate remarked that "many of [Coates'] comments were based on his examination of documents outside of the relevant period" (AB 89). Brouwer's evidence was similarly described as being "largely concerned with periods outside of the period of the charge" (AB 88). Although not expressed in this way, I think it is clear that the Magistrate found this aspect of the evidence of Coates and Brouwer rendered it of less weight.

29 In addition, the Magistrate described Brouwer's evidence as "[un]persuasive as to the accuracy of [the Company's] source figures" (AB 88).

30 The Magistrate concluded that the Company failed to meet the requirements of s 289(1) of the Law (AB 89 - 90):

"I am satisfied that [the Company] failed to keep any adequate receipts or payments or general journals which would have provided a readily acceptable summary of transactions over time and that no adequate general ledger was kept to receive journal entries so as to give a clear and accessible picture of income, expenses, and reimbursements associated therewith and of monies held in trust for tenants which would have to be accounted for after a time.

I am also satisfied that no acceptable or convenient mechanism exists for conducting reconciliations of income and expenses with source information and I am not satisfied that any proper depreciation schedule was readily available.

Clearly s 289(1) aims at maintaining certain minimum standards of accounting for corporations. In my opinion it is not enough that accounts kept may correctly record and explain the Company's transactions because, clearly, that obligation could be met and still create enormous difficulties in accessing the accounts embedded in the records if they are not kept in an acceptable manner. The further requirement is that a corporation shall keep its records so as to enable the preparation of 'true and fair accounts' periodically and also to enable the accounts to be 'conveniently and properly audited or reviewed'

(Page 14)

in accordance with the legislation. I find that the accounts as kept by [the Company] failed before and at the material time to meet those criteria."

31 The Magistrate further concluded that the appellant had not taken all reasonable steps to ensure the Company's compliance with s 289(1) (AB 89 - 91):

"I find from the evidence of Honey, Coates and Levi that it would not have been difficult for the basic accepted accounting procedures to have been put in place for [the Company] and that there was no special reason why they were not implemented. I am satisfied that the [appellant] himself with his accounting qualifications and experience assumed primary responsibility for keeping the Company's accounts and instead of adopting the conventional and accepted methods satisfied himself, probably because of the pressures of business and his personal life, with an inferior and makeshift set of procedures which were in arrears of collation and proper organisation at the material time and which he attempted to brush up into some kind of order when he realised that scrutiny of those figures was imminent.

There was no rational reason apparent from the evidence for his failure to adopt proper and accepted procedures to maintain the Company's accounts either personally or through the agency of a qualified person under his supervision. There is evidence that such a person had been utilised for other companies over which the [appellant] had similar control. It is for those reasons that I find that the [appellant] failed to take all reasonable steps to secure [the Company's] compliance with s 289(1) during the material time.

I find that the [appellant's] attention was drawn to the need for a competent accountant. He had told Mr Levi that he lacked the time to devote to maintaining the records of his companies. This occurred in 1988, well before the material period and arose out of discussions relating to Levi's report to the Commonwealth Bank. Similarly it must have been clear to the [appellant] from [Levi's letters of November 1989 and April 1990 to him] that [the Company's] accounts were far from acceptable. Although he employed a qualified accountant to organise and maintain similar records in his other two

(Page 15)

companies, the [appellant] gave no such instructions in relation to [the Company].

I am satisfied that the [appellant] failed to take all reasonable steps to secure [the Company's] compliance with s 289(1) between the dates alleged."

32 Finally, the Magistrate was not persuaded that the appellant had reasonable grounds to believe and did believe that a competent and reliable person was charged with the duty of seeing that s 289(1) was complied with and was in a position to discharge that duty. The Magistrate found that the appellant's "professional knowledge of accounting and of the records of [the Company] before and during the relevant period made any such belief highly unlikely" (AB 91).

Grounds of Appeal

33 This appeal is based upon two principal grounds. First, that the Magistrate erred in law or fact or both in finding the charge proven. Secondly, that the Magistrate failed to provide adequate reasons for his conclusions. The first principal ground contains numerous sub-grounds and is expressed as follows in the Notice of Appeal:

"That the learned Magistrate made an error of law or fact or of both law and fact in the following findings relating to the period between 23 April 1991 and 23 April 1993:

(i) Kazhak Pty Ltd failed to keep any adequate receipts journal which would have provided a readily acceptable summary of transactions over time;
(ii) Kazhak Pty Ltd failed to keep any adequate payments journal which would have provided a readily acceptable summary of transactions over time;
(iii) Kazhak Pty Ltd failed to keep any adequate general journal which would have provided a readily acceptable summary of transactions over time;
(iv) Kazhak Pty Ltd failed to keep an acceptable or convenient mechanism for conducting reconciliations of income and expenses with source information;


(Page 16)

(v) Kazhak Pty Ltd failed to keep its records so as to enable the preparation of true and fair accounts;
(vi) Kazhak Pty Ltd failed to keep its records so as to enable the accounts to be 'conveniently and properly audited or reviewed';
(vii) the Applicant failed to take all reasonable steps to secure Kazhak’s compliance with s 289(1) of the Corporations Law;
(viii) there was no reasonable basis or any state of belief of the Applicant that a competent and reliable person was charged with a duty of ensuring compliance with s 289(1)."

Application to adduce fresh evidence

34 At the outset of the hearing of the appeal, an application was made by counsel for the appellant for leave to adduce fresh evidence in support of the first principal ground of appeal. The application was made in reliance upon s 196(1) of the Justices Act 1902 (WA) which provides:

"196. Evidence

(1) The Court shall determine the appeal –
(a) …
(b) on such further evidence either oral or by affidavit as the Court thinks fit to receive."
35 After hearing the application, I indicated that I would hear the evidence that the appellant wished to adduce and then I would rule on its admissibility in the course of delivering judgment generally. I will now determine the appellant’s application for leave to adduce fresh evidence.

36 The "fresh evidence" consists of copies of handwritten statements prepared by Weedon, and sometimes Hoger, and recorded in a journal kept at the Caravan Park. The statements summarised the Caravan Park's banking, income and expenses, and copies were sent by Weedon or Hoger to the appellant on a weekly basis. The copies of the summaries were not produced at trial, and Weedon and Hoger had no recollection of them when questioned about whether or not they existed. The appellant,

(Page 17)

however, gave evidence as to receiving the copies every week. After the conclusion of the proceedings in the Court of Petty Sessions, Weedon and Hoger were shown copies of some of the summaries. In their affidavits, they deposed that they did indeed prepare them and post them to the appellant.

37 It is not exactly clear what happened to the copies of the summaries and why they were not produced at trial. It is probable that, as submitted on behalf of the appellant, they were among the documents seized from the appellant by the respondent at the time Honey and Ledger were appointed as receivers and managers of the Caravan Park and contained in a box at the offices of KPMG Peat Marwick. Pursuant to a subpoena duces tecum, the appellant's solicitors had inspected the contents of the box during the course of the trial but overlooked the copies of the summaries in the course of that inspection. It appears that they were similarly overlooked by the receivers and managers, or at least by Honey, who had access to all of the seized documents for the purposes of preparing his expert evidence. There is no evidence that an officer from the ASIC or the Crown prosecutor investigated what was in the box.

38 The copies in question re-surfaced in October 1999, when the appellant looked in the box at the Supreme Court Registry, whilst inspecting the exhibits and other subpoenaed documents in the custody of the Court pending this appeal. They were interleaved with the Commonwealth Bank statements relating to the Caravan Park contained in a lever-arch file.

39 The test as to the admissibility of fresh evidence was discussed in Australian Electrical Electronics Foundry & Engineering Union Western Australia Branch v Hamersley Iron Pty Ltd(1998) 19 WAR 145 at 161 - 3. According to Malcolm CJ, with whom Kennedy and Owen JJ agreed, at 162:

"The general principle [as to the admissibility of fresh evidence] is that a verdict or judgment regularly obtained should not be disturbed by the admission of further evidence without some insistent demand of justice. If the only matter which is relied upon is that it is desired to adduce evidence which was not used at the trial, it must be reasonably clear that, if the evidence had been available and adduced at the first trial, it is highly likely that it would have produced an opposite result and that no reasonable diligence on the part of the defeated party would have enabled him to procure the evidence: Orr v Holmes (1948)

(Page 18)

76 CLR 632 at 640 per Dixon J; and Greater Wollongong Corporation v Cowan (1955) 93 CLR 435 at 444 per Dixon CJ."

40 Given the uncertainty as to whether or not the documents were in the box at the time of trial, I am not prepared to find that they could have been discovered by the use of reasonable diligence on behalf of either party. To that extent the test for admission is satisfied. Therefore, it is not necessary for me to address the appellant’s submission that, notwithstanding the possibility that his solicitor overlooked the copies whilst inspecting the box, there remained an onus on the Crown also to exercise reasonable diligence to produce the copies by virtue of its duty to present all of the evidence relevant to the charge.

41 It remains for me to decide whether, if the copies of the summaries had been adduced at trial, "it is highly likely that it would have produced an opposite result". In Hamersley Iron, at 163, Malcolm CJ described this requirement as the "real possibility" test, referring to the passage in Commonwealth Bank of Australia v Quade (1991) 178 CLR 134 at 143 where Mason CJ, Deane, Dawson, Toohey and Gaudron JJ said:

"Though it is not necessary that the appellate court be persuaded in such a case that it is 'almost certain' or 'reasonably clear' that an opposite result would have been produced, the question whether the verdict should be set aside will almost inevitably be answered in the negative if it does not appear that there is at least a real possibility that that would have been so."

42 Had the copies of the summaries been put before the Magistrate, the conflict between the evidence of the appellant and that of Hoger and Weedon in relation to the appellant receiving "weekly reports" about the Caravan Park would not have arisen. Counsel for the appellant submitted that this is significant for two reasons. First, it was submitted that the evidence of the summaries would have satisfied the Magistrate that the appellant's recordkeeping complied with s 289(1) at the material times. Secondly, it was submitted that the Magistrate's findings as to the appellant's credibility would have been more favourable and that, consequently, the Magistrate would have viewed the appellant's evidence as a whole in an entirely different light. Counsel said that the Magistrate's primary findings of fact must have been "completely coloured by his finding of credibility in relation to the existence of these records" (see appeal transcript at 72). This is because the Magistrate's rejection of the appellant's evidence over Hoger and Weedon must have influenced his

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approach to every other conflict between the evidence of the appellant and that of the other witnesses.

43 I do not agree with the submission that the evidence of the summaries would have resulted in the Magistrate concluding that the appellant's recordkeeping complied with s 289(1). There were simply too many other deficiencies which influenced the Magistrate to find that the Company's recordkeeping was not adequately maintained. These other deficiencies are unaffected by the fresh evidence. The fact that meaningful reconciliations of all the Company's accounts were not being conducted, for example, is unchanged. The Company's passbook accounts, for example, could only have been properly reconciled by checking the passbooks (being the primary records) against the bank statements. Evidence that summaries of the passbook entries were used to check the bank statements does not suffice, because the summaries may contain errors. There also remains the fact that there was a loan account between the Kahzak Pty Ltd and one of the other Love Group companies, but that the loan transactions were not recorded in Kahzak Pty Ltd's cash book. Instead, the records of the other company were relied upon. It seems to me that in the circumstances of the Love Group of companies, Kahzak Pty Ltd was required to stand on its own in so far as its recordkeeping was concerned.

44 I should add that, arguably, the summaries would not have altered the Magistrate's conclusion that the Company's recordkeeping was insufficient because they did not form part of the Company's records, in the sense that they were never intended to be kept permanently. As submitted by counsel for the respondent, I do not think that records that are not intended to be kept can be used as evidence of a company's recordkeeping for the purposes of compliance with s 289(1). They may be used in some circumstances, however, as evidence that a director of a company was taking reasonable steps to ensure the company satisfied the requirements of s 289(1). In the circumstances of this case, however, the evidence of the summaries could not be relied upon in that way. The summaries were not a means by which the appellant would 'double-check' compliance, nor were they evidence of a system by which he secured compliance.

45 I turn now to the second point raised by counsel for the appellant in support of this application. This relates to whether the Magistrate's view of the appellant's credibility would have been different had the copies of the summaries been in evidence at trial, and if so, what impact that may have had on the Magistrate's factual findings. In the end this issue may

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not be critical. Aside from any credibility issues, the objective evidence was such (with or without the copies of the summaries) as to justify the finding that the Company's recordkeeping did not comply with the requirements of the Law. Even if the Magistrate found the appellant to be a reliable and truthful witness, I think the outcome would have been the same, as there would have remained unchallenged evidence on which a conclusion that the Company's records did not satisfy s 289(1) could be reached.

46 Nevertheless, I will deal with the credibility issue. I note, as conceded by counsel for the appellant, that it is normally very difficult to attack findings of credibility, and findings of fact based on the credibility of witnesses. This difficulty was discussed by Templeman J, with whom Pidgeon and Ipp JJ agreed, in Goldsmith v Sandilands & Ors [2000] WASCA 18 at [184] - [187]. At [185], his Honour referred to a passage of Lord Hoffmann (with whom all the other members of the House of Lords agreed) in Biogen Inc v Medeva PLC (1996) 36 IRP 438 at 452, where it was said:

"The need for appellate caution in reversing the Judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous Judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed feelings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la verite est dans une nuance), of which time and language do not permit exact expression, but which play an important part in the Judge's overall evaluation."

47 Templeman J continued, at [186] - [187]:

"This passage has been approved by the Full Court of the Federal Court in Esso Australia Resources Ltd v Commissioner of Taxation (1998) 98 ATC 4,768 at 4,779 and S & I Publishing Pty Ltd v Australian Surf Lifesaver Pty Ltd(1999) ATPR 41-667 at 42,505.

It is considerations such as those which caused Brennan, Gaudron and McHugh JJ to say in Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479:

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'More than once in recent years, this Court has pointed out that a finding of fact by a trial Judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact. If the trial Judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial Judge 'has failed to use or has palpably misused his advantage' or has acted on evidence which was 'inconsistent with the facts incontrovertibly established by the evidence' or which was 'glaringly improbable'.' "

48 With the approach enunciated in the above authorities and the entire body of evidence that was before the Magistrate in mind, I cannot conclude that the Magistrate would have made significantly different findings as to the appellant's general credibility and the primary facts if the copies of the summaries had been before him.

49 In my view, it would have remained open to the Magistrate to reach similar views on credibility. The Magistrate based his overall assessment of the appellant's credibility on several findings. See, for example, the following comments (AB 86 - 7):

"As to the employment of Mr Sharbanee, having regard to the admissions by the [appellant] to the ASC investigators on 4 April 1995, where he said that Mr Sharbanee had nothing to do with [the Company's] affairs, I find that Sharbanee was not involved with [the Company's] affairs and I find that I cannot accept [the appellant's] evidence conflicting with [those admissions]. Those findings have some effect on his general credibility …"

and (AB 89):

"The question arises as to whether the [appellant] attempted to alter some of [the Company's] accounts after he became aware of the investigation in 1994, and in particular the entries in exhibit 19 between pages 49 and 55 In the face of the very persuasive and unequivocal evidence of Mr Andrews and Ms Brennan and the [appellant's] inability to explain why some entries were repetitive, I am persuaded that those entries were added between 21 and 25 October 1994. The resulting effect of this upon the [appellant's] credit creates difficulty in accepting

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that the information given to Coates by him on that and other aspects of the accounts is reliable …"

50 I am not persuaded that, had the copies of the summaries been in evidence at trial, it is highly probably that the Magistrate's finding as to the appellant's credibility would have differed. Therefore, in so far as the appellant's credibility may have affected the way in which the Magistrate resolved any incidents of conflict between the evidence of the appellant and that of the other witnesses and the Magistrate's primary findings of fact, I am not persuaded that they would have been any different.

51 I do not think there is a "real possibility" that an opposite result would have been produced by the copies of the summaries. Accordingly, the Quade test has not been satisfied. I would refuse the appellant leave to adduce copies of the summaries as fresh evidence to be taken into account in the determination of this appeal.

Did the Magistrate err in finding the charge proven?

52 I will now consider what I have referred to as the first principal ground of appeal, namely that the Magistrate erred in law or fact or both in finding the charge proven. I do not think it is necessary specifically to address each of the eight sub-grounds set out in the Notice of Appeal. Sub-grounds (i) to (vi) can be grouped together, as they are directed at the Magistrate's conclusion that the Company's recordkeeping did not comply with s 289(1). Sub-ground (vii) seeks to challenge the finding that the appellant failed to take all reasonable steps to secure the Company's compliance with s 289(1). Sub-ground (viii) relates to the conclusion that the appellant had not made out a defence under s 591(2).

53 I have already referred to some examples of the deficiencies in the Company's recordkeeping, upon which the Magistrate based his final decision that s 289(1) was not being complied with during the relevant period. These were the unchallenged evidence that proper accounts reconciliations were not being conducted, and that loan transactions between Kahzak Pty Ltd and another Love Group company were not being recorded in its books. It is strongly arguable, in my view, that those examples alone demonstrate that there was sufficient evidence for the Magistrate to conclude that the Company's recordkeeping did not meet with the requirements of s 289(1).

54 However, the Magistrate also had the benefit of the expert evidence of Honey, Inglis and Levi. They detailed what they perceived to be

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serious inadequacies in the Company's system of keeping records. They were generally of the view that the Company was not complying with the Law. It is trite to say that the ultimate decision on that issue fell to be made by the Magistrate, not by the witnesses. Nonetheless, the Magistrate was entitled to, and did, prefer the evidence of Honey, Inglis and Levi to that body of opinion evidence presented on behalf of the appellant, which was to the effect that the Company's recordkeeping was imperfect but compliant.

55 Counsel for the appellant submitted, in relation to that finding, that the Magistrate concluded that the Company failed to keep "adequate" records, but did not then detail what would have been acceptable or "adequate". I will address that complaint when I consider the second principal ground of appeal, which challenges the adequacy of the Magistrate's reasons.

56 I should say something about the argument raised by counsel in relation to sub-ground (iii), regarding the Magistrate's finding that the Company failed to keep any adequate general journal. Counsel for the appellant submitted that the evidence was that there was no need for a general journal to form part of the records of a company of this nature and size, and that even Honey (whose expert evidence the Magistrate expressly preferred) conceded as such. It was said, therefore, that the Magistrate erred in relying on the Company's failure to keep a general journal as a basis for his conclusion that s 289(1) was not being complied with. I think this submission can be answered in two ways.

57 First, even if I were to accept that the Magistrate should not have taken into account the lack of a general journal in deciding whether the Company's recordkeeping complied with s 289(1), I do not think it could properly be characterised as an appealable error. There were several other bases for the Magistrate's conclusion, and the finding in relation to the general journal was not of such significance that it 'tipped the balance' on the side of non-compliance.

58 Secondly, there is authority to support the view that the keeping of a general ledger is one of the "minimum requirements" of s 289(1). In Van Reesema v Flavel (1992)10 ACLC 291, which involved a company the business of which was less substantial than that carried out by the Company, King CJ (with whom Bollen and Prior JJ agreed) said at 294:

"The two obligations imposed upon a company by [s 289(1)] are first to keep such accounting records as correctly record and

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explain the transactions of the company and its financial position and second to keep those records in such a manner as will enable the preparation from time to time of the accounts of the company and will enable the accounts of the company to be conveniently and properly audited.

…

The expression "accounting records" in its ordinary connotation is, in my opinion, apt to include the various books of prime entry such as cashbook and journal as well as the ledgers. … The obligation then is to keep such books of account and source materials as are necessary for the purposes specified in s 289(1).

It is hardly necessary to say that the obligation is not met by simply keeping the source materials from which a set of books may be written up."

His Honour continued at 295:

"The financial position of the company could only be recorded and explained by the keeping of a ledger organising entries regarding [its] transactions into proper accounts. These were clearly the minimum requirements also to enable the accounts of the company to be audited and to enable a profit and loss account and balance sheet to be prepared. The fact that the source materials were retained and that accounts could be written up from those source materials does not discharge the company's obligation."

59 Each case must be examined on its merits. What is sufficient for one company may not be so in relation to another. However, in the light of Van Reesema, I think that the failure to keep any adequate general journal is relevant in deciding whether or not a company has satisfied the requirements of s 289(1).

60 For the reasons I have outlined above, I am of the view that sub-grounds (i) to (vi) of the first principal ground of appeal have not been made out. At p8 of the appellant's written submissions, it is conceded that the success or failure of sub-grounds (vii) and (viii) is dependent upon the outcome of sub-grounds (i) to (vi). It seems to me that this concession is properly made. As counsel for the appellant put it, if I were to uphold the Magistrate's finding that the Company's

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recordkeeping did not satisfy s 289(1), then there would be "no technical argument whereby the applicant would say that somehow he gets out of having failed to comply by reason just of a factor relating to [sub-]grounds (vii) and (viii). He would simply say that the […] compliance requirements were met and therefore he had taken reasonable steps" (77 of appeal transcript). I am not persuaded that I should overturn the finding that the Company's recordkeeping failed to comply with the Law. Accordingly, sub-grounds (vii) and (viii) of the first principal ground of appeal fall away.

Adequacy of Magistrate's reasons

61 The second principal ground of appeal relates to the adequacy of the Magistrate's reasons. In full, this ground of appeal is as follows:

“[T]hat the learned Magistrate in making findings of fact upon issues the subject of disputed evidence, failed to provide any analysis of the relevant evidence or to refer to the portions of the disputed evidence that he accepted or rejected. By reason of this failure, the learned Magistrate has failed to provide adequate reasons for his conclusions and the judgment should be set aside.”

62 It seems to me that, as submitted by counsel for the appellant, the Magistrate's findings suggest that he was satisfied that certain records were kept, such as a receipts and a payments journal, and that certain procedures were being undertaken, such as reconciliations, but that they were not "adequate" for the purposes of s 289(1). The appellant submitted, however, that the Magistrate did not properly explain what he considered was deficient and what would have been acceptable. Consequently, it is not apparent on the face of the reasons why the Magistrate arrived at the conclusions which he did, and so the entire process must be called into question and set aside: see Pallott & Ors v Harrison, unreported; SCt of WA (Owen J); Library No 950261; 12 May 1995.

63 Counsel for the appellant also argued that the Magistrate's reasons are unclear as to what records and recordkeeping procedures he was satisfied were being maintained by the Company. I do not think that is correct. The Magistrate clearly accepted the evidence of Hoger and Weedon as to what records were kept by the Company. He stated that those records included day books, work books, a guest register, a rent receipts book, records for electricity usage, bank deposit books, bank

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passbooks and wages books (AB 83 and 84). Although he did not expressly state as such, it is apparent that the Magistrate did not accept that an expenses book, at least of the kind described by the appellant, was being maintained. I say this because his reference to that part of the appellant's evidence is qualified by immediate reference to Hoger's evidence "denying that any such expenses book was kept apart from mere invoices and receipts" and his later remark that "where there are conflicts of evidence between the defendant on the one hand and Hoger and Weedon on the other, I prefer the latter" (AB 85 and 89). Similarly, the Magistrate rejected the appellant's evidence that he regularly inspected the records at the Caravan Park, and that copies of the summaries the subject of the application to adduce fresh evidence were being forwarded to the appellant (AB 87). As to the mechanism for conducting reconciliations, I agree that it is somewhat difficult to distinguish exactly what the Magistrate considered took place. But I think this is of little significance. Even if he had accepted the appellant's evidence in this respect, his finding would have remained the same: "that no acceptable or convenient mechanism existed for conducting reconciliations of income and expenses with source information" [emphasis added].

64 I have already described above the Magistrate's reasons for decision in some detail. It is necessary to repeat some of what I have there said with specific reference to the question whether they disclose how the Magistrate arrived at his conclusions.

65 The Magistrate stated that the determination of whether the Company's recordkeeping complied with s 289(1) depended "largely upon a careful consideration and appraisal of the opinion evidence" (AB 83). He then identified the two conflicting bodies of opinion evidence, for and against the appellant. Having already recounted the relevant evidence of each witness in considerable detail, the Magistrate proceeded to refer to the opinion evidence in summary form only. In the course of that summary, the Magistrate gave his reasons for preferring the expert evidence presented on behalf of the respondent. Those reasons clearly elucidate why he arrived at that preference. In short, he questioned the reliability and accuracy of some aspects of the evidence of the appellant, Brouwer and Coates. By contrast, the Magistrate expressed confidence in the accuracy of Honey's evidence, and considered him to be an "unemotive", "impartial" and "sincere" witness.

66 Counsel for the appellant argued that it was not sufficient for the Magistrate effectively to adopt Honey's evidence, without detailing what he accepted of that evidence (and rejected of the other experts' evidence)

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so as to conclude that the Company's records did not comply with s 289(1). I do not accept that argument. The reasons for decision must be read as a whole. In other words, it must be kept in mind that the Magistrate had already described Honey's evidence, which evidence contained extensive detail as to what was required of the Company by the Law's recordkeeping provisions and how it was that the Company was not satisfying those requirements. The Magistrate did not need to explain his findings as to the Company's failure to comply with s 289(1), and what he would have considered "adequate", by repeating the relevant portions of Honey's evidence. It was enough that he made it clear that he accepted what Honey had to say on the subject. It would have been objectionable had the Magistrate effectively delegated his decision-making role to the expert witnesses. But that is not what happened. The Magistrate has made findings of objective fact, considered the opinions expressed, and has preferred one body of evidence over another. He has then reached his own conclusion on the basis of his findings of objective fact and the opinion evidence.

67 I feel compelled at this point to repeat the sentiments I expressed in Garrett v Nicholson (1999) 21 WAR 226 at 248, those being:

"It is becoming more and more common in appellate litigation for a challenge to be made on the basis that the tribunal of fact failed to give any, or any adequate, reasons for the decision or for particular findings. I think the obligation to give reasons is often misunderstood or is applied in a manner that is hardly feasible given the realities of administering justice in this day and age."

68 It is the duty of a judicial decision-maker to give reasons for decision which adequately reveal the intellectual process by which he or she made a particular determination. The basis for the duty is both "to enable the litigant to know why it is that the result ensued and to ensure that the statutory right of appeal has been secured": see Frichot v Zalmstra, unreported; FCt SCt of WA per Owen J (with whom White J agreed); Library No 981291; 13 May 1998 at 14. In my view, the Magistrate has fulfilled that duty here. The trial lasted nine days, spread over a period of about 16 months. There were at least 10 witnesses, 900 pages of transcript and more than 75 exhibits. The Magistrate was not required to analyse every piece of relevant evidence, nor specifically to refer to each piece of the disputed evidence that he accepted or rejected, in order so to do.
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69 There was also no need for the Magistrate expressly to define, with specific reference to the Company, what would have constituted "adequate" records and recordkeeping procedures so as to achieve compliance with s 289(1). The critical issue was whether the records which were actually kept were "inadequate". Put more accurately, the fundamental question was whether the Crown had discharged the onus of establishing that the records did not comply with s 289(1). In my view, the reasons for decision adequately explain why the Magistrate was so satisfied.

Conclusion

70 I would refuse leave to adduce fresh evidence and dismiss the appeal.