R v Donald; ex parte Attorney-General of Queensland

[1993] QCA 152

IN THE COURT OF APPEAL [1993] QCA 152

SUPREME COURT OF QUEENSLAND

C.A. No. 31 of 1993

Brisbane
[The Queen v. Donald]

BETWEEN

T H E Q U E E N
v.
IAN ROBERT DONALD

(Respondent)

ATTORNEY-GENERAL OF QUEENSLAND

(Appellant)

Mr Justice McPherson
Mr Justice Davies

Mr Justice Shepherdson

Judgment delivered 30/04/93

Reasons for judgment by the Court

The question:

"Was the trial judge correct in ruling that the accused could not have intended to gain an advantage for a person by payment of money to him within the meaning of section 229(4) of the Companies Code, Queensland if the person who receives the money is otherwise entitled to it?"

is answered No.

CATCHWORDS COMPANY LAW - Reference under s.669A Criminal Code - s.229(4) Companies (Qld) Code - Improper use of position - Whether director gained an advantage.

Counsel:  Mr W. Sofronoff Q.C., with him

Ms. J.A.Phillips, for the appellant

Mr P.E. Hack for the respondent

Solicitors:	Director of Prosecutions for the appellant
Cleary & Hoare for the respondent

Hearing Date: 8 April 1993
THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

C.A. No. 31 of 1993

Brisbane

Before Mr Justice McPherson
Mr Justice Davies
Mr Justice Shepherdson

[The Queen v. Donald]

BETWEEN

T H E Q U E E N
v.
IAN ROBERT DONALD

(Respondent)

ATTORNEY-GENERAL OF QUEENSLAND

(Appellant)

REASONS FOR JUDGMENT - THE COURT
Judgment delivered 30/04/1993

This is a reference under s.669A of the Criminal Code by the Attorney-General of Queensland in criminal proceedings on an indictment containing some 47 counts charging the respondent Ian Robert Donald with having committed offences against s.229(4) of the Companies (Queensland) Code. After the prosecution evidence had been given at the trial in the District Court, the trial judge acceded to a defence submission and (with the exception of count 32) directed the jury to find verdicts of not guilty on each count.

The facts as summarised in the reference are that in 1986 Ardina Electrical (Queensland) Pty. Ltd. ("Ardina") was a company engaged in electrical contracting on major building projects in Queensland. Of its issued share capital half was owned by the respondent and the other half by a Mr and Mrs Sheather, who were directors of the company. They lived in Sydney and took no part in the day to day running of the business, which was managed in Queensland by the respondent, who was also a director.

In 1986 the respondent and his wife acquired the whole share capital of Kayam Constructions Pty. Ltd. ("Kayam"), of which they became the only directors. Kayam acquired various items of plant and equipment, which were then used for performing work that Ardina was carrying out under its construction contracts. Hiring fees were charged by Kayam for the use of the equipment and paid by Ardina by cheques drawn on the company's bank account. The cheques were signed by the respondent on behalf of Ardina after being drawn by office staff of the company in accordance with invoices submitted by Kayam. The invoices from Kayam were prepared by the wife of the respondent on the basis of information supplied by him.

The respondent did not disclose to the Sheathers the existence of his own or his wife's interest in the transactions with Ardina, and he actively concealed the facts by putting Ardina's name on the equipment hired out by Kayam. He did not tell the foreman or supervisors that the equipment did not belong to Ardina. Although when cheques for other suppliers were prepared it was office practice first to check and confirm the accuracy of the invoices with the Ardina foremen or supervisors, this was not done in the case of invoices from Kayam; those invoices were taken direct to the respondent, who signed the cheques in favour of Kayam. In some instances the invoices submitted by Kayam were false in that the equipment charged for had not been used for Ardina either at all or to the extent claimed in the invoice.

In 1988 another company Locus Electrical (Townsville) Pty. Ltd. ("Locus") was acquired by the respondent and his wife. Again they were the only directors. Locus functioned as subcontractor to Ardina doing work on jobs obtained by Ardina and then invoicing it with charges for the work. Mr Sheather had previously said he would not agree to any arrangements for subcontracting work, and the respondent refrained from disclosing to him or Mrs Sheather either the existence of Locus or his interest in it. The procedure for obtaining payment was similar to that used in the case of Kayam, and again there were instances in which invoices were rendered by and payments made to Locus for work that was never done or services that were not provided.

By s.229(4) of the Companies Code it is an offence for an officer of a corporation:

"... to make improper use of his position as such an officer ... to gain directly or indirectly, an advantage for himself or any other person or to cause detriment to the corporation."

In Chew v. The Queen (1992) 173 C.L.R. 626, 633-634, it was held that the part of that subsection beginning "to gain ..." introduced a purposive element, making it necessary to establish not merely that the accused intended that a result would ensue but also that he believed that the intended result would be an advantage to some person or a detriment to the corporation; however, given that intention, it was held not to be necessary to show that the advantage in fact accrued : see Chew v. The Queen, at 633.

It is a breach of fiduciary duty for a director to permit a conflict to arise between his personal interest and his duty to the company of which he is director : see Aberdeen Ry. Co. v. Blaikie (1854) 1 Macq. H.L. 461. Of this a common instance is a contract made between the company and the director himself or another company in which that director is interested : see

Transvaal Land Company v. New Belgium (Transvaal) Land &
Development Company [1914] 2 Ch. 488; Hely-Hutchinson v. Brayhead Ltd. [1968] 1 Q.B. 549; Gower : Modern Company Law, 4th ed., at 583-584; Ford : Company Law, 5th ed., at 448-451. In circumstances like that the fiduciary duty can be discharged only by obtaining approval for the contract after full disclosure of the relevant interest to the members in general meeting, or, if the articles permit it, to the other directors.
There can be little doubt that in secretly arranging for the companies Kayam and Locus to hire plant to or to do work for Ardina with a view to those companies being paid for it, the respondent acted in breach of his fiduciary duty to Ardina. It would be a short step from there to the conclusion that, within the terms of s.229(4), the respondent made improper use of his position as an officer of Ardina to gain an advantage for himself, or for Kayam or Locus, or for his wife. It is true that the agreements between those companies and Ardina were not express; but it would make no difference in principle if it were necessary to infer from the circumstances an agreement that the benefits provided by the companies were to be paid for.
For some reason the prosecution case at the trial was not kept within this simple framework. The problem seems to have arisen from the particulars furnished in the course of the Crown opening to the effect that the respondent made improper use of his position as director of Ardina:

"in that, by authorising the payment of the amount stated in each count, he did not act in the interests of Ardina ... but instead acted in the interests of his own private companies whose interests conflicted with those of Ardina ...".

It will be seen that the element selected by these particulars as the "improper use of ... position" was not the act of bringing about the contracts or transactions between Ardina and either of the other two companies, but of discharging Ardina's obligation to pay for what it had received under the contracts.

This led her Honour to rule that the question of law was whether on the dates the respondent wrote out cheques to Kayam and Locus in payment of various invoices:

"... he did so using his position improperly with the intention that Kayam or Locus would receive an advantage in the sum of that cheque ...".

Having posed the question in that form, the learned judge went on to conclude that, by paying those two companies amounts to which they were at least partially entitled, the respondent "cannot have intended to have conferred an advantage in the sum of all the proceeds of" those cheques. It was because she accepted this view of the offences with which the respondent was charged that the judge directed the jury to find the respondent not guilty of all but one of the charges.

With respect, we are not able to agree that the circumstance that there may have been a genuine contractual or quasi-contractual right to the whole or a part of each payment received by Kayam and Locus has the consequence in law that the respondent cannot have been intending that those companies should "gain ... an advantage". Even if they were owed the money, it would surely have been an advantage for them to have been paid it; that would certainly be the commercial approach : cf. Williams v. Roffey Bos. & Nicholls (Contractors) Ltd. [1991] 1 Q.B. 1, 15-16, 19, 21, 23. If the two companies had not been paid for the work done or the services provided, they would doubtless have sustained a loss on those transactions. To have received only enough to meet or offset their losses would, we think, be capable of amounting to gaining an advantage; for, as was accepted long ago by the English Court of Appeal, receiving an indemnity against loss, or even a partial indemnity, can be considered to be the "acquisition of gain" : see Re Padstow Total Loss & Collision Association (1882) 20 Ch.D. 137; cf. also Vandyk v. Minister of Pensions [1955] 1 Q.B. 29, 40. Here the words are not "acquisition of gain" but "gain ... an advantage"; however, that only affords a stronger basis in the present case for thinking that the notion of earning a profit is not a necessary element of the expression used in s.229(4).

At the trial the matter may have been complicated by the way the prosecution presented its case, which tended to merge the two elements of improper use of position, and intention to gain an advantage. The particular advantage identified here is said to be that, by improperly using his position as director, the respondent intended to gain for the companies Kayam and Locus the benefit of prompt payment of their claims without close scrutiny or inquiry as to their propriety or validity. After reading through the transcript of addresses at the trial we are satisfied that this mode of formulating the case against the respondent was advanced by counsel for the Crown in the course of the submissions preceding her Honour's ruling and direction to the jury. It was because the prosecution was approaching the matter in this way that the particulars were stated in the form they were, which was that the respondent had "made improper use of his position as director of Ardina ... by authorising the payment of the amount" stated in each count, which corresponded to the amount of each cheque drawn by Ardina.

It was the respondent who signed the cheques; but the crucial element was not his merely ministerial act of signing but the preceding or accompanying decision involving the exercise of a discretion or judgment on the part of the respondent whether or not to pay the particular claim : cf. Re London & Mediterranean Bank, ex.p. Birmingham Banking Co. (1868) L.R. 3 Ch.App. 651, 653-654.

This is obviously what the particulars set out to identify when they spoke of authorising the payment of the amount in each count; so that the ultimate question was whether, in deciding that the invoices from Kayam or Locus should be paid, the respondent was making improper use of his position as an officer of the corporation Ardina to gain the advantage of payment for those two companies.

The respondent was not only a director of Ardina but the managing director of that company. Clause 101 of the articles of association of Ardina contains the standard provision for appointing a managing director, while cl.7(ii) of the memorandum of association confers on the respondent as the holder of the ordinary "A" class management shares "the right to management of the business and control of the company". It would therefore have been legitimate for the jury to conclude that in deciding on each occasion when a cheque was signed in favour of Kayam or Locus that the relevant invoice should be paid, the respondent was making use of his position as managing director; that, in so authorising or procuring payment to be made, his use of that position was improper; and that he intended that the two companies should gain an advantage from his authorising those payments. That was so because payment was effected under such circumstances as to ensure that the relevant claims were met without any form of processing or checking of the kind that was applied to claims forwarded by other creditors of Ardina. This was an advantage that it was open to the jury to find the respondent intended and was able to bring about because his position as managing director meant that his actions were not likely to be scrutinised or challenged by other employees or directors of the company.

The reference to this Court under s.669A contains a series of four questions of varying relevance to the matters for decision. Some of them, in the form in which they are now formulated, are not readily susceptible of being answered. Mr Sofronoff Q.C. accepted that if the Court found that to be so, a single question restated in the following more limited form should be answered:

"Was the trial judge correct in ruling that the accused could not have intended to gain an advantage for a person by payment of money to him within the meaning of section 229(4) of the Companies Code, Queensland if the person who receives the money is otherwise entitled to it?"

Stated in that form the question should, we consider, be answered No.