R v Donaldson & Poumako

[2009] SASC 31

SUPREME COURT OF SOUTH AUSTRALIA

(Court of Criminal Appeal)

R v DONALDSON & POUMAKO

[2009] SASC 31

Judgment of The Court of Criminal Appeal

(The Honourable Justice Duggan, The Honourable Justice Bleby and The Honourable Justice David)

19 February 2009

CRIMINAL LAW - APPEAL AND NEW TRIAL AND INQUIRY AFTER CONVICTION - APPEAL AND NEW TRIAL - APPEAL AGAINST SENTENCE - APPEAL BY CONVICTED PERSONS

CRIMINAL LAW - APPEAL AND NEW TRIAL AND INQUIRY AFTER CONVICTION - APPEAL AND NEW TRIAL - APPEAL AGAINST SENTENCE - APPEAL BY ATTORNEY-GENERAL OR OTHER CROWN LAW OFFICER

Appellants convicted of 22 counts of offering securities without lodging a disclosure document contrary to s 727(1) of the Corporations Act 2001 (Cth) and 22 counts of issuing securities without disclosure contrary to s 727(4) of the Corporations Act 2001 (Cth) – appellants appealed against conviction on all counts and the appellant Poumako appealed against sentence – prosecution appealed against sentence imposed on the appellant Donaldson – consideration of s 708 of the Corporations Act – consideration of mistake of fact and mistake of law – consideration of statements containing admissions and exculpatory parts – consideration of recklessness as to whether disclosure had been made under s 727 (1) and s 727 (4) of the Corporations Act and whether jury adequately directed on this element in the case of the appellant Donaldson.

Held: appellant Poumako's appeal against conviction dismissed – appellant Donaldson's appeal against conviction on counts 1 to 13 inclusive and counts 23 to 35 inclusive allowed – her convictions on those counts set aside – appellant Donaldson's appeal against conviction on the remaining counts dismissed.

Court to hear submissions on whether to order a re-trial on the counts on which convictions are set aside and further submissions on the appeal against sentence by the appellant Poumako and the sentence to be imposed on the appellant Donaldson.

Corporations Act 2001 (Cth) s 9, s 92(1), s 706, s 708, s 708(1), s 708(3), s 708(11), s 708(12), s 727(1), s 727(4), Part 6.D, Part 6D.2; Criminal Code (Cth) s 5, s 5.4, s 5.6(2), s 9.1, s 9.2 ; Australian Securities and Investments Commission Act 2001 (Cth) s 19, s 30, referred to.
Ostrowski v Palmer (2004) 218 CLR 493, applied.
Robinson v R (1991) 180 CLR 531, distinguished.
Iannella v French (1968) 119 CLR 84; Spence v Demasi (1988) 48 SASR 536; Mule v R (2005) 221 ALR 85, discussed.

R v DONALDSON & POUMAKO
[2009] SASC 31

Court of Criminal Appeal:       Duggan, Bleby and David JJ

1. DUGGAN J:        The appellants were found guilty by verdicts of a jury of 22 offences of offering securities without lodging a disclosure document contrary to s 727(1) of the Corporations Act 2001 (Cth) (“the Corporations Act”) and 22 counts of issuing securities without disclosure contrary to s 727(4) of the Corporations Act.  They have appealed against conviction on all counts and the appellant Poumako has appealed against sentence.  The Director of Public Prosecutions for the Commonwealth has applied for permission to appeal against the sentence imposed on the appellant Donaldson.

2. At all relevant times the appellants were the only directors and shareholders of International Finance Corporation Pty Ltd (“IFC”).  According to the prosecution case, IFC raised more than $3,000,000 from 37 investors between December 2002 and December 2003.  The finance was raised through debentures.  Investors were given to understand that the money would be used for property development.  High interest rates were promised.  The enterprise failed.

3. In broad terms the prosecution alleged that in relation to the offences charged $1,228,000 was raised from 19 investors unlawfully in that the transactions took place at a time when the disclosure requirements, prescribed by the Corporations Act as being applicable to them, were not met.  Two of these investors were reimbursed loan capital totalling $120,000.  The balance raised from the other 17 investors has not been repaid. 

4. The agreements entered into between IFC and investors were debentures as defined in s 9 of the Corporations Act and, as such, they come within the definition of “securities” in s 92(1). Section 706 provides that an offer of securities for issue needs disclosure to investors under Part 6D.2 of the Corporations Act unless exempted under s 708.

5. Section 708 sets out the criteria for offers which do not require disclosure.[1] Section 708(1) provides as follows:

   [1]    References are to the Corporations Act 2001 (Cth) as at the time of the alleged offences.

   708    Offers that do not need disclosure

   Small scale offerings (20 issues or sales in 12 months)

   (1)     Personal offers of a body’s securities by a person do not need disclosure to investors under this Part if:

   (a)none of the offers results in a breach of the 20 investors ceiling (see subsections (3) and (4)); and

   (b)none of the offers results in a breach of the $2 million ceiling (see subsections (3) and (4)).

   This subsection does not apply to an offer for sale to which subsection 707(3) (sale amounting to indirect issue) or (5) (sale amounting to indirect sale by controller) applies.

   Note 1:Subsection 727(4) makes it an offence to issue or transfer securities without disclosure to investors once 20 issues or transfers have occurred or $2 million has been raised.

6. Section 708(3) states that an offer by a body corporate (referred to as a “body” in the Corporations Act) to issue securities:

   (a)results in a breach of the 20 investors ceiling if it results in the number of people to whom securities of the body have been issued exceeding 20 in any 12 month period; and

   (b)results in a breach of the $2 million ceiling if it results in the amount raised by the body by issuing securities exceeding $2 million in any 12 month period.

7. Section 708(4) provides that an offer by a person to transfer a body’s securities:

   (a)results in a breach of the 20 investors ceiling if it results in the number of people to whom the person sells securities of the body exceeding 20 in any 12 month period; and

   (b)results in a breach of the $2 million ceiling if it results in the amount raised by the person from selling the body’s securities exceeding $2 million in any 12 month period.

8. Section 708 goes on to exempt specific transactions from the need to meet the disclosure requirements. The requirements which I have summarised were referred to at the trial as the “20-12 rule” and I will adopt that shorthand description. They are also described in s 708 of the Corporations Act as “small scale offerings”. The categories which are relevant for present purposes are provided for in s 708(11) and (12) to which I now refer.

   Professional Investors

9. Section 708(11) removes the disclosure requirements where offers are made to professional investors. At the time of the alleged offences a professional investor was defined in s 9 of the Corporations Act as a person in relation to whom one or more of the following paragraphs apply:

   (a)the person is a financial services licensee;

   (b)the person is a body regulated by APRA, other than a trustee of a fund or trust referred to in any of subparagraphs (d)(i) to (iv);

   (c)the person is a body registered under the Financial Corporations Act 1974;

   (d)the person is the trustee of:

   (i)    a superannuation fund; or

   (ii)     an approved deposit fund; or

   (iii)    a pooled superannuation trust; or

   (iv)    a public sector superannuation scheme;

   within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million;

   (e)the person controls at least $10 million (including any amount held by an associate or under a trust that the person manages);

   (f)the person is a listed entity, or a related body corporate of a listed entity;

   (g)the person is an exempt public authority;

   (h)the person is a body corporate, or an unincorporated body, that:

   (i)    carries on a business of investment in financial products, interests in land or other investments; and

   (ii)     for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82, the terms of which provided for the funds subscribed to be invested for those purposes;

   (i)the person is a foreign entity that, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.

   Associated Investors

10. This exception applies to offers of securities to people who are associated with the body. This exception is provided for in s 708(12) of the Corporations Act which provides:

    (12)An offer of a body's securities does not need disclosure to investors under this Part if it is made to:

    (a)     an executive officer of the body or a related body or their spouse, parent, child, brother or sister; or

    (b)     a body corporate controlled by a person referred to in paragraph (a).

11. There is ample evidence on the prosecution case that the disclosure was required in the circumstances established by the prosecution and that no such disclosure was made in relation to the transactions upon which the charges were based. The principal issue canvassed at the trial was whether the offering and issuing of the securities was intentional and whether the appellants were reckless as to the circumstance that the offers and issues would be in excess of the limits imposed by the 20-12 rule. Recklessness is one of the fault elements set out in s 5 of the Criminal Code (Cth) (“the Criminal Code”) and will be discussed in more detail later in these reasons.

12. During the investigation the appellants were each examined on oath pursuant to s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (“the ASIC Act”).

13. The appellants claimed in the course of the examinations that certain transactions relevant to the charges were exempt from the disclosure provisions and they gave details of the basis for their beliefs to that effect.

14. The trial judge dealt with these assertions in the context of his summing up to the jury on the fault elements of the charges. However, according to the submissions made by the appellants, His Honour should have gone further and instructed the jury on the application of the defence of mistake or ignorance of fact to the circumstances of the case. This defence is set out in s 9.1 of the Criminal Code which states:

    Mistake of fact (fault elements other than negligence).

    (1)A person is not criminally responsible for an offence that has a physical element for which there is a fault element other than negligence if:

    (a)     at the time of the conduct constituting the physical element, the person is under a mistaken belief about, or is ignorant of, facts; and

    (b)     the existence of that mistaken belief or ignorance negates any fault element applying to that physical element.

    (2)In determining whether a person was under a mistaken belief about, or was ignorant of, facts, the tribunal of fact may consider whether the mistaken belief or ignorance was reasonable in the circumstances.

15. Section 9.2 of the Criminal Code provides for a defence of mistake of fact in cases of strict liability.  It is not relevant to the present offences which require proof of fault elements. 

16. The Director of Public Prosecutions argued that any mistake claimed by the appellants in relation to the exceptions to the 20-12 rule was a mistake of law and not fact, in which event the defence did not apply. In order to deal with this submission it is necessary to examine more closely the versions given by the appellants in their examinations under the ASIC Act.

17. In his examination, which took place on 8 October 2003, the appellant Poumako explained what he understood the term “professional investor” to mean.  He said:

    Now most of my friends at that time that I was talking – we were talking, we were all professional investors.  Some of them were professional investors in the true sense of the word and what I call a professional investor is someone who declares to the Taxation Department that the income they are deriving from this be it mezzanine funding is as a professional investor.  So my classification of what is a professional investor?  Somebody who tells the Tax Department I’m a professional investor, the client.  That being the case then many of the people in the early days whom we were talking – discussing we were all professional investors because that what we done.  We declared to the Tax Department that we earnt money as a professional investor.  X amount of dollars and we paid tax on it and everyone of these people were doing that.  So I therefore classify them as being professional investors so not inclusive in these 20 people or 20 numbers of investors.  And that’s where we’re at today I suppose.

18. Mr Poumako was then asked questions about his understanding of the concept of professional investors by one of the examiners, Ms Francas:

    FrancasDo you know whether there’s a legal definition of professional investor and what is meant by a professional investor?

    PoumakoI have – no.  I have asked many many questions about that and I’ve discussed it with many people.  Now I don’t know what’s right and what’s wrong now.  Everybody’s got a different opinion of what including the Tax Department who I’ve rang up and asked and I suppose their verbal advice was that a – if a person is a professional investor and declares his income as a or his proportional income as a professional investor they’re classified as such.

    FrancasI’m talking now about for the purposes of the fundraising provisions of the Corporations Act, not the Tax Office definition. So.

    PoumakoI don’t know your definition.  I don’t know what is a professional investor.

19. Mr Poumako also said that, when assessing whether there were 20 investors for the purposes of the disclosure requirements, he did not include family and friends.  He said:

    The other issue was those people who were classified as being family or friends.  They likewise were not necessarily the 20 investors they were family and that basically how we have operated.  Now be that right or wrong I don’t know, you’re going to tell me this.  But that’s basically been the basis on which we have operated.

20. It appears that Mr Poumako was there referring to his understanding of the exemption relating to people associated with the body.  The examination continued:

    FrancasAnd family and friends.  Who do you interpret as coming within that definition.  What do you mean by friends.

    PoumakoHusbands, wives, brothers and sisters or defacto husbands or whatever.

    FrancasAnd friends.

    PoumakoThat’s it.  Husbands, wives, brothers and sisters.

21. However, when Mr Poumako was questioned about particular investors, none were identified as coming within the exemption relating to associates.  He was asked about one of the investors, Peter Dimopolous:

    FrancasRight. In terms of if you look at page 2 which is Peter Dimopolous and the lender is Dimpana as trustee for the Inqua Trust.  What’s the relationship of Mr Dimopolous to your family or Ann-Marie Donaldson’s family?

    PoumakoMy family, to me.  Peter Dimopolous and I have been together for years and years.  He’s like a brother to me.

    FrancasIs he your brother?

    PoumakoHe’s not my blood brother.  But he’s been with me for years and years and years and I’m talking 15 or more years.

    FrancasHe’s not a blood relative?

    PoumakoNot a blood relative.  Stays with me.

    FrancasHe’s not a defacto husband or –

    PoumakoNo.

    FrancasSo to the extent that when you earlier said it was husbands, wives, brothers, sisters, defacto brothers and defacto wives, in fact this list contains people who don’t fall in any of those categories.  Is that correct?

    PoumakoSure.  Sure.  But they’re classified to me like a brother.

22. The appellant Donaldson’s examination took place on 9 October 2003.  She referred to the category of professional investors:

    FrancasAs a result of your discussions with Mr. Poumako what was your understanding of what IFC could and couldn’t do in terms of implementing its strategy of being a mezzanine funder?

    DonaldsonThat we could have 20 investors and we could – people could invest between $20,000 and $2 million.

    FrancasWere there any other ways in which IFC could raise monies besides these 20 investors?

    DonaldsonI’ve always been led to believe that we could have professional investors.

    FrancasAnd what’s your understanding of professional investors?

    DonaldsonThat it is someone that is a professional investor that at the end of the tax year that they declare that they are a professional investor and they declare their income.

    FrancasWhere did you get that understanding from?

    DonaldsonI’ve been told that.  I mean it’s just natural.  If I’m a finance broker I have to declare I’m a finance broker.  People just would be – declare they’re professional investors.

    FrancasIs that an assumption that you’re making or has somebody told you that that’s what a professional investor is?

    DonaldsonI’m saying no where it came from actually. Sorry.

    FrancasDid it come from Mr. Poumako?

    DonaldsonNot directly.  I would say no.  We have probably like 15 or give or take 15 professional investors involved with us.  Yes.

    FrancasAnd in that sense you mean – how do you mean by professional investors?

    DonaldsonI’ve just answered that question.

    FrancasHow did you know these people were professional investors?

    DonaldsonThey told me.

    FrancasWhat did they tell you?

    DonaldsonWe’re professional investors.  They’re a lot of groups that are known as professional investors and that’s what Mr. Poumako is pronounced as, a professional investor.

    FrancasDoes it have to be investing in any particular sort of investment or is it anybody who invests in any sort of investment?

    DonaldsonAnyone that actually – I’ve just read one of your ASIC’s documents – anyone that actually invests money in shares or whatever is classed as an investor.  These people are classed as professional investors.

    FrancasWhat makes them professional as opposed to any other person who invests?

    DonaldsonBecause, I’ve answered that question as well.  It’s declared.  When they go to the tax – put their tax in they’re declaring that they’re a professional investor.

    And later:

    FrancasBut you have 31 investors and $3.3 million or thereabouts.

    DonaldsonRight.

    FrancasAnd I think you just said you didn’t count certain people –

    DonaldsonNo I didn’t.

    FrancasFor the purposes of calculating the $2 million and 20 investors.

    DonaldsonNo, I didn’t.  No, I haven’t.

    FrancasAnd I’m trying to understand why you didn’t count them.

    DonaldsonBecause I’ve been led to believe that they’re not included as 20 normal investors.

    FrancasAnd what led you to believe – on what basis did you have that belief that they’re not counted?

    DonaldsonWhen I was working at First Pacific Capital they had private investors and professional investors that would not be included in the 20/12, which I found out 20/12 the other day, and that’s the same system.  So I naturally took it for a fact.

    Ms Donaldson also referred to her understanding of the exception in relation to family and friends:

    DonaldsonI really didn’t think we had to count private people like my family or my friends.

    FrancasWhy not?  Why did you think that?

    DonaldsonBecause they’re – I just didn’t – I was led to believe I didn’t have to do that.

    FrancasWhat – who or what led you?

    DonaldsonFirst Pacific Capital have got two different ones.  One they’ve got like this, that have got the people that come in off the street, and then they’ve got their private people that are private investors.  A private investor is to me is a personal friend of mine that’s interested in the company that I’m involved with or a friend of mine that’s interested in the company.

    FrancasSo from what you’re saying is it your understanding that you could have as many of those people as you wanted or as much money as you wanted?  Friends – you could have as many friends invest in your company –

    DonaldsonIf I wanted to go that silly yes.  But no I haven’t got that.  I’ve only got a few that yeah hasn’t amounted to much money.

    FrancasYeah.  But from what you’re saying it doesn’t have that.  But from what you’re saying your understanding of the law is you could have as many friends as you like invest in your company and they could invest as much money as they liked?

    DonaldsonYes.

    FrancasAnd you didn’t have to count them for the 20 in 12 months?

    DonaldsonYes.

1. In my view, s 9.1 of the Criminal Code is of no practical relevance in a case such as the present.  Whereas a distinct defence of mistake of fact is relevant to cases of strict liability, a consideration of the fault elements in a case which does not involve strict liability will subsume any issue involving mistake of fact.  This was recognised in the report of the Model Criminal Code Officers:[2]

   Although, strictly speaking, evidence of a mistake is only one sort of evidence which may cast doubt on the presence of a fault element, the Committee thought that for the sake of clarity, the Code should state the matter explicitly. In part, the Committee was influenced by the fact that the Code will speak to a wider audience than lawyers.

   [2] Model Criminal Code Officers Report, December 1992 [306].

2. The section has been described as superfluous in that “if a fault element cannot be proved because the defendant had a particular mistaken belief about a fact, or was ignorant of a fact, it cannot be proved”.[3]

   [3]    Watson & Watson, Australian Criminal Law Federal Offences [1.880.10]; see also Ian Leader‑Elliott The Commonwealth Criminal Code: A Guide for Practitioners, at 173.

3. This no doubt explains why s 9.1 was not alluded to by counsel at the trial and was not referred to in the summing up of the trial judge.

4. But there is a further consideration which renders the defence inapplicable to the circumstances of the present case.

5. At common law and under s 9.1 of the Criminal Code a distinction is drawn between mistake of fact and mistake of law.  McHugh J referred to the distinction in Ostrowski v Palmer when he said:[4]

   In R v Turnbull, Jordan CJ, when discussing the common law concept of mens rea, said: [5]

   “[I]t is also necessary at common law for the prosecution to prove that he knew that he was doing the criminal act which is charged against him, that is, that he knew that all the facts constituting the ingredients necessary to make the act criminal were involved in what he was doing. If this be established, it is no defence that he did not know that the act which he was consciously doing was forbidden by law. Ignorance of the law is no excuse. But it is a good defence if he displaces the evidence relied upon as establishing his knowledge of the presence of some essential factual ingredient of the crime charged.” (Emphasis added.)

   This passage was cited with approval by Brennan J in He Kaw Teh v The Queen.[6]

   Similarly, in Thomas, Latham CJ said that “[m]istaken belief as to any relevant element of the offence is sufficient to bring the case within the rule in Tolson’s Case”.[7] His Honour summarised the rule in R v Tolson as follows: “[T]he accused is not guilty if he had an honest and reasonable belief in the existence of facts which, if they had really existed, would have made his act both legally and morally innocent”.[8]

   [4] (2004) 218 CLR 493 at 512.

   [5] (1943) 44 SR (NSW) 108 at 109, Davidson and Street JJ concurring.

   [6] [1985] HCA 43; (1985) 157 CLR 523 at 572.

   [7] [1937] HCA 83; (1937) 59 CLR 279 at 292, citing R v Tolson (1889) 23 QBD 168.

   [8] [1937] HCA 83; (1937) 59 CLR 279 at 287.

6. It must be accepted that the distinction between the two is not always easy to determine in practice.[9]  However, in the present case there is no room for doubt.  The relevant law is set out in the Corporations Act which defines the circumstances which will render transactions exempt from the duty of disclosure.

   [9]    Iannella v French (1968) 119 CLR 84 at 114.

7. The appellants’ explanations are founded upon what they claim to be their understanding of the law.  A belief that a professional investor for the purposes of the disclosure requirements is a person who declares him or herself to be such in a taxation return is a belief as to the state of the law.  So also is a belief that transactions with close friends are not to be taken into account in determining whether the ceiling of 20 investors has been reached or exceeded.  It would be different if the transaction took place with a person mistakenly believed to be the trustee of a superannuation fund[10] or a person believed to be the brother of a senior manager of the body inviting subscription.[11]

   [10] One of the categories of “professional investor” referred to in s 9 of the Corporations Act.

   [11] An exception under s 708(12) of the Corporations Act.

8. For these reasons it is my view that directions on the defence of mistake of fact provided for in s 9.1 were not required and the grounds of appeal which assert that they were should be dismissed.

9. The next ground of appeal is also common to both appellants. It relates to directions given by the trial judge concerning the jury’s approach to the examinations conducted pursuant to the ASIC Act.

10. The examinations were lengthy and, in addition to the tapes being played at the trial, a transcript of what was said on each occasion was tendered in evidence by the prosecution.[12]  They are what are sometimes called “mixed” statements by reason of the fact that the prosecution relied on certain statements in the examinations which were said to constitute admissions and the defence relied on other parts which were said to be exculpatory.  The appellants did not give evidence at the trial.  It is apparent from the discussion on the first ground of appeal that the appellants relied for their defence on the explanations they gave during the examinations for not taking into account certain offers in calculating the number of offers for the purposes of the 20-12 rule.

    [12] P131 (Poumako) and P132 (Donaldson).

11. This ground of appeal complains of the trial judge’s directions on the use of the statements insofar as they were relied upon by the appellants.  His Honour said:

    …in considering what the accused said to ASIC at the time they were interviewed, it is a question for you of what weight you attach to that statement:  keeping in mind that because the interview was early they did not have the opportunity to comment on the later transactions; keeping in mind how long after the events or some of the events charged these interviews took place; keeping in mind any reason any one of them may have had for concealing or misrepresenting any matter; and any other circumstance which might assist you in considering how reasonable it is to draw an inference about the accuracy of what they said.

    So just keep those things in mind. It is unusual in cases where you have before you the evidence of somebody that is given on oath but has made a statement out of court, so keep those things in mind when you evaluate it. (Emphasis added)

    Earlier the trial judge said to the jury:

    In this matter, neither of the accused has given evidence. You should understand that it is the right of each of them to say nothing. You should not draw any inference adverse to either of them from the fact that he or she has made that choice because neither of them carries the onus of proving anything. Each of the accused was, however, required by legislation to provide a sworn statement to the investigator of ASIC and that has been put before you as part of the prosecution case. Each was advised, in the course of that examination, that he or she could claim privilege against self-incrimination with respect to particular questions but neither chose to exercise that right.

    You should consider their respective statements and the weight you will attach to them in a similar way to the evidence of any other witness in the case, but keeping in mind that neither of them carries any onus of proof and, importantly, whatever one may have said in his or her statement is not and cannot be used by you as evidence against the other.

12. It was argued that the trial judge erred in making the highlighted remarks in the first of the above extracts.  Counsel for Mr Poumako said that no suggestion was made at the trial that the appellants had concealed or misrepresented any matter of fact during the ASIC examinations.  There was a further criticism that the trial judge’s remarks wrongly suggest that regard by the appellants to the outcome of any charges which might be laid is a factor to be taken into account in assessing the versions given by the appellants to the ASIC officers.  Finally, it was said that the impugned directions reversed the onus of proof.

13. It is well established that, in the case of alleged admissions tendered by the prosecution, the prosecution is expected to tender the whole statement if it is appropriate to provide context and that, if parts of it are exculpatory, they may be relied upon by the accused.  This approach was summarised by Cox J in Spence v Demasi:[13]

    The position in the criminal court, I think, is clear. It is common for the Crown to tender a record of the accused's interrogation by the police, and often this will contain a mixture of admissions and self-serving statements. The Crown cannot pick and choose. It cannot put in only the damaging questions and answers, or have the admissions treated as evidence and the rest rejected or ignored as hearsay. The whole interrogation (or narrative statement, as the case may be) goes before the jury and it is for them to decide what parts, if any, they will act upon in reaching their verdict. They may give different weight to different parts: see R v Higgins (1829) 3 C & P 603; 172 ER 565. The failure of the accused to give evidence may well influence their attitude to the self-serving answers. A modern statement of the practice is found in the judgment of the English Court of Appeal in R v Duncan (1981) 73 Cr App R 359 at 365:

    "It is, to say the least, not helpful to try to explain to the jury that the exculpatory parts of the statement are something less than evidence of the facts they state. Equally, where appropriate, as it usually will be, the judge may, and should, point out that the incriminating parts are likely to be true (otherwise why say them?), whereas the excuses do not have the same weight. Nor is there any reason why, again where appropriate, the judge should not comment in relation to the exculpatory remarks upon the election of the accused not to give evidence."

    The Full Court of this State declared the law to substantially the same effect in R v Karpany [1937] SASR 377. It followed precedents extending back to R v Jones (1827) 2 C & P 629; 172 ER 285. Similar decisions in other States, with respect to the criminal jurisdiction, are Sharp v Hotel International Ltd [1969] VR 103 at 109-110; R v Williamson [1972] 2 NSWLR 281, 295; and R v Cox [1986] 2 Qd R 55: see also Jack v Smail (1905) 2 CLR 684 at 695, 707-708. In England the rule, as enunciated in Duncan, wavered, perhaps, in R v Kurshid [1984] Crim L R 288 but was affirmed in R v Hamand (1985) 82 Cr App R 65.

    There is nothing in the ASIC Act which would prevent the evidence of the examinations being used in the manner explained by Cox J.

    [13] (1988) 48 SASR 536 at 540-541; See also M v R (1994) 72 A Crim R 269.

14. When the tapes and corresponding transcripts of the examinations were admitted it was the task of the jury, as the trial judge instructed them, to attach such weight to the exculpatory parts of the examinations as they saw fit.  In doing so they were entitled to take into account all the circumstances surrounding the making of the statements and this included the possible motives for making them.  In my view, the trial judge did no more than draw this consideration to the attention of the jury.

15. In Mule v R[14] the appellant was convicted of possessing a prohibited drug with the intention to sell or supply it to another.  The prosecution tendered a record of interview in which the appellant admitted possession of the drug.  At trial, the defence relied upon other parts of the interview which were favourable to the appellant including his assertion that the drug was for his personal use.

    [14] (2005) 221 ALR 85.

16. The summing up contained the following direction:[15]

    The denial -- his denials and the assertions that he makes, are not supported by evidence from him on oath in the witness box and therefore those matters do not have the same weight as evidence, as his admissions or confession, if you like, of possession, for example, against interest, doesn't have the same evidential weight, but the accused's denials and his assertions are still matters for you to consider. They are before you and you give them what weight you see fit.

    In their joint judgment Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ said:[16]

    They [the jury] could also evaluate those statements in the light of the fact that they were self-serving. As a matter of law, it was correct to tell the members of the jury that they were not obliged to attach the same weight to all the statements made in the interview, and that it was for them to decide the weight to be given to particular statements. As an observation on the facts, in the circumstances of this case, it was not inappropriate to point out that, while the admissions of possession were accepted by both sides at the trial to be true, the assertions about purpose were in dispute, that they were not supported by any sworn testimony and that they were self-serving. It would also not have been inappropriate to point out that the jury might think them to be of less weight than the admissions.

    It is apparent that the direction which was upheld in Mule v R went further than the direction in the present case which did no more than refer to the possibility of a self‑serving motive as being one of the matters to be taken into account by the jury.

    [15] Ibid at [11].

    [16] Ibid at [22].

17. The reliance on Robinson v R[17] to support the other complaints about the impugned direction is misplaced.  In that case the appellant was convicted of rape.  The trial judge directed the jury that they should take into account when assessing the witnesses the interest which they might have in the outcome of the case in that they might think “that the accused had the greatest interest of all the witnesses”.  The High Court held that the implication of the direction was that the appellant’s evidence required more careful scrutiny than the evidence of any other witness.  It was held that this was a serious misdirection which undermined the presumption of innocence.

    [17] (1991) 180 CLR 531.

18. In my view, the directions in the present case could not have led the jury to adopt an incorrect approach to the assessment of the version given by the appellants in their respective examinations.  Furthermore, the directions did not detract from the accurate directions which were given to the jury with respect to the onus of proof.

19. I would dismiss this ground of appeal.

20. There are two additional grounds of appeal in the case of the appellant Donaldson. First it was submitted that the trial judge failed to direct the jury adequately on the fault element of recklessness with respect to the issue of whether disclosure had been made to ASIC in relation to the offences charged under s 727(1) of the Corporations Act, and to investors in relation to the offences charged under s 727 (4) of that Act.

21. The submission requires some analysis of the elements of the offences which, as has been pointed out, involve the dichotomy of physical and fault elements referred to in the Criminal Code.

22. Section 727(1) provides:

    Offering securities without a current disclosure document

    Offer of securities needs lodged disclosure document

    (1)A person must not make an offer of securities, or distribute an application form for an offer of securities, that needs disclosure to investors under Part 6D.2 unless a disclosure document for the offer has been lodged with ASIC.

    Section 727(4) provides:

    (4)If a person relies on subsection 708(1) [small scale offerings] to make offers of securities without disclosure to investors under Part 6D.2, the person must not issue or transfer securities without disclosure to investors under that Part if the issue or transfer would result in a breach of the 20 investors ceiling or the $2 million ceiling (see subsections 708(3), (4), (5), (6) and (7)).

23. The following physical elements must be proved in order to establish an offence contrary to s 727(1):

    1An offer was made to an investor.

    2The offer was in relation to a security.

    3The offer was of such a nature as to require disclosure to the investor of the information prescribed by Part 6D.2 of the Corporations Act. 

    4There was a failure to lodge a disclosure document with ASIC.

    The first element consists of conduct.  Intention is the fault element for that physical element (Criminal Code s 5.6(1)).

24. In my view, elements 2, 3 and 4 of an offence under s 727(1) are properly characterised as circumstances. I discuss this characterisation in more detail later in these reasons. Recklessness is the fault element for those physical elements (Criminal Code s 5.6(2)).

25. The physical elements which constitute an offence under s 727(4) are as follows:

    1There was an offer of securities in reliance on s 708(1) (small scale offerings).

    2There was an issue of such securities.

    3The issue resulted in a breach of the 20‑12 rule.

    4There was no disclosure to investors of the information required by the Act.

    The intentional conduct required for a breach of s 727(4) is the issuing of the securities referred to in para 2. Recklessness is the fault element required for the circumstances set out in paras 1,3 and 4.

26. Section 5.4 of the Criminal Code provides that a person is reckless with respect to a circumstance if:

    (a)he or she is aware of a substantial risk that the circumstance exists or will exist; and

    (b)having regard to the circumstances known to him or her, it is unjustifiable to take the risk.

    Section 5.4 also provides that if recklessness is a fault element, proof of intention, knowledge or recklessness will satisfy the fault element.

27. Part 6D.2 of the Corporations Act sets out the circumstances in which disclosure is required and the exceptions to those requirements which have been discussed above.  The only sections which are relevant to the present case are those which deal with the 20-12 rule.

28. It was the prosecution case that, in the case of the offences charged under s 727(1) and s 727(4) the appellants had to be reckless as to the need for disclosure and reckless as to the circumstance that no disclosure had been made.[18] When dealing with the elements of the offence under s 727(1) in his final address, the prosecutor said of this last mentioned element:

    And fourthly, [it must be proved] that the offer was made without a disclosure document being lodged.  And in that regard they have to be reckless, but there is really no issue about that at all.  There is no claim by them that there was a disclosure document here.  Of course, their claim effectively is they didn’t need one so I don’t think that element will trouble you; there certainly wasn’t one lodged.

    When dealing with the elements of s 727(4) the prosecutor made a similar submission to the jury in relation to non‑disclosure to investors.

    [18] Submissions to the trial judge T543.

29. It is important to bear in mind the distinction between proof of the absence of disclosure and recklessness as to whether disclosure was made.  As has been pointed out, the absence of disclosure is a physical element in the nature of a circumstance.  The fault element relevant to that physical element is recklessness.

30. In his directions in the summing up proper the trial judge confined his attention to the fact of non-disclosure. When dealing with the offence under s 727(1) he said:

    The fourth element of the first 22 counts is that no disclosure document was lodged with ASIC. You might think that was not in issue here. The prosecution says none was and the defence does not suggest otherwise. The real question, you might think, was whether one needed to be lodged. That is the real question, you might think, focussed upon that third element I have just discussed.

    A similar direction was given when His Honour dealt with the elements of s 727(4):

    The fourth element is that the prosecution must show, having proved the first three elements, that the required disclosure was not made. One way or another, you might think that this fourth element was not in contest. The prosecution evidence was that no required disclosure was ever made and the accused, you might think, did not seek to contend otherwise.

    There was no reference to the requirement of the fault element which must be established in relation to non‑disclosure in the case of both offences.

1. The jury retired at 1.06pm.  They returned at 3.43pm seeking further instructions on “the elements of the charges, in particular the mental element”.

2. The trial judge then gave the jury directions outlining the physical and fault elements of the two categories of offences.  His Honour explained that the focus of the defence of the appellants was their claim that the 20‑12 ceiling was not exceeded because of their belief as to the meaning of professional and associated investors.

3. When His Honour re‑directed the jury on the elements of the offence under s 727(1) he said they were:

   … 1, that the offer in question was made by IFC. With respect to that element, there must be an intention to make an offer. The second element is that the offer must be one of securities. With respect to that element, the Crown need not prove an intention but must, at the least, prove recklessness in the sense I have explained it.

   With respect to the third element, that the offer made to a particular investor was one that, by reason of the number and amount of previous investments, needed to be disclosed, that third element does not require the Crown to prove intention but the Crown must prove recklessness in the sense I will come to.

   The fourth element: no disclosure document was lodged with ASIC, that is a question of intention again.

   His Honour then turned to the offence under s 727(4) and, when referring to the fourth element, he said:

   The fourth element, that the required disclosure was not made. That is an element that requires an intention.

4. It will be noted that, whereas His Honour did not refer to any fault element in relation to the fourth element of each offence earlier in his summing up, in these subsequent directions he instructed the jury that this element required an intention not to disclose. 

5. I have said that in my view the words “unless a disclosure document for the offer has been lodged with ASIC” in s 727(1) refer to a circumstance and not conduct. Accordingly the fault element would be recklessness.

6. The words “must not issue or transfer securities without disclosure” in s 727(4) are perhaps more difficult to categorise, but I have expressed the view that the only conduct which requires proof of intention is the issuing or transferring of securities and the words “without disclosure” import circumstances which attract the fault element of recklessness.

7. When the jury retired after these further directions counsel for the Director of Public Prosecutions questioned the trial judge’s direction that the fourth element in each case required intentional conduct.  However, the issue was not pressed and no further directions were given.

8. Although the directions as to intentional conduct were favourable to the appellants, there may well have been some confusion in the minds of the jurors in attempting to apply the concept of intentional conduct to what was a circumstance as opposed to considering whether there was recklessness as to its existence.

9. When these additional instructions were given the trial judge told the jury that, although it was a matter for them, elements 1, 2 and 4 of s 727(1) had not been seriously contested at the trial. He added:

   The prosecution must prove them beyond reasonable doubt but, for the reasons I have expressed, you may think as to counts 1 to 22 that IFC did make offers, that the offers were a security and that it did not lodge a disclosure document. You may think that, but it is for you.

   When dealing with the elements of the offence under s 727(4) in answer to the jury’s question His Honour repeated his observation that the jury might think that whether the fourth element of non‑disclosure occurred was again “not so much in issue”.

10. These statements were correct in the case of Mr Poumako.  However, the jury were required to consider the case against each appellant separately and when dealing with Ms Donaldson’s case it was necessary for directions to be given not only as to whether disclosure statements were provided but also whether Ms Donaldson was reckless as to whether they had been provided.  It was necessary for the directions on the law to be related to the facts relevant to Ms Donaldson’s case.

11. Although the fact of non‑disclosure was not contested, the greater part of counsel’s address on behalf of Ms Donaldson rested on the submission that it had not been proved that she had knowledge of non‑disclosure and that she was not reckless in the relevant sense as to this circumstance.  As has been pointed out the definition of “recklessness” requires at the outset an awareness of a substantial risk that the relevant circumstances exist.  This involves an examination of the knowledge and state of mind of the person charged.

12. The nature of the offences charged made for a difficult case in which to sum up.  However, the trial judge “broad brushed” the defence in the sense that he did not distinguish between the two appellants.  The summing up proceeded as though the knowledge of each appellant was the same.  There was no mention in the summing up of the argument put on behalf of Ms Donaldson as to her lack of knowledge of the link between the 20‑12 rule and disclosure.  The trial judge told the jury:

    The third element is that the offer made to a particular investor was one that, by reason of the number and amount of previous investments, needed to be disclosed; that is, on each count the prosecution must satisfy you beyond reasonable doubt that the particular offer needed disclosure because it was made at a time when the 20 investor and $2 million ceilings had been exceeded.

    It is here, you might think, that the real issue in this case with respect to the first 22 counts lay. In their interviews each of the accused said that the disclosure was never needed because certain of the investors relied upon and counted by ASIC were exempt investors and that they were exempted because they were professional investors or sophisticated investors or associated persons within the meaning of those terms as I have just explained them to you. (Emphasis added)

    It is true that the effect of what Ms Donaldson said in her examination was that the 20-12 ceiling was not exceeded.  However, she was not asked about the consequences of that and, in particular, she was not asked any questions about the requirement of disclosure.  She was not asked whether she was aware disclosure had to be made in certain circumstances and whether, to her knowledge, disclosure had or had not been made in relation to any of the counts.  She conceded that she knew about a rule called the 20-12 rule and the inference to be drawn from her examination is that she was aware that there was some law or regulation which prevented the ceiling from being exceeded.  But she did not link that in her answers with any requirement to disclose information either to ASIC or to investors.

13. The next ground of appeal argued on behalf of Ms Donaldson relates to the question whether she was aware of the advice from BDO Consulting (SA) Pty Ltd (“BDO”).  This was an important part of the prosecution case.  Mr Poumako had undertaken a course conducted by BDO.  He had also sought advice from BDO about setting up a mortgage investment scheme.  On 9 January 2003 BDO set out in a letter to him (P6) the various options which were available to pursue such an activity.  The 20-12 rule was explained and, in particular, it was made clear that a scheme outside the requirements of the 20-12 rule would require disclosure including a two‑part prospectus for fundraising.  It is beyond doubt that, at least from the time he received the letter, Mr Poumako was aware of all relevant aspects of the 20‑12 rule including the requirements of disclosure.  The recklessness element associated with non‑disclosure was clearly established in his case.

14. However, Ms Donaldson said during her examination that she did not attend the BDO course with Mr Poumako and she said she had no dealings with anyone at BDO.  She was not a director of IFC at the time Mr Poumako received the letter from BDO.  She said that he discussed what BDO told him “to a degree” but there was no suggestion in the answers she gave during her examination that he told her of the requirements of disclosure or that she became aware of those requirements through any other source.

15. In his opening address the prosecutor told the jury that both appellants had been told of the relevant aspects of the 20-12 rule by BDO.  He said:

    They don’t have to know the law and intend to breach it, they only have to be reckless in this regard, that is as to this need for disclosure.  They have to be aware in those circumstances that there is a substantial risk that the 20-12 limit would be breached. In this regard you can take into account that from the outset they knew about the rule: they had been told it by BDO.  They had been told they could not go beyond it. (Emphasis added)

    In his closing address the prosecutor maintained the assertion that both appellants had been advised by BDO.  He said:

    When they went to BDO and got their advice they opted for that: ‘We’ll stick to the small scheme, we’ll keep it to 20-12’.

16. When dealing with the evidence against the appellants in his summing up the trial judge said:

    You might think that the evidence comprising the information memorandum, which you have, the BDO advice, the evidence of Mr Pedler and, indeed, the evidence of what each accused said in his or her interview all supports the conclusion that IFC did seek to rely upon such a scheme, a small investor scheme; a small scale offering. You might have little trouble, therefore, with the proof of that element, but that is for you.

    Again, the BDO advice was presented to the jury as part of the information acquired by Ms Donaldson.  This is the basis of the second ground of appeal put forward by Ms Donaldson in addition to the grounds of appeal common to both appellants.

17. By not differentiating in the treatment of the case against each appellant, the trial judge failed to discuss Ms Donaldson’s assertion that she knew little of the BDO advice.  Furthermore the assertion by the prosecutor, in both his opening and final address, that she had received advice directly from BDO was left uncorrected. 

18. Ms Donaldson did say in her interview that she had heard of the 20-12 rule when working in her previous employment.  However, knowledge of the disclosure requirements was not something which was proved against her by direct evidence.  It was for the jury to decide whether she was reckless as to non‑disclosure and to consider the extent of her knowledge as to that circumstance in doing so.

19. As I have pointed out, the situation was quite different in the case of Mr Poumako.  It was not suggested that he was unaware of the relevant aspects of the 20-12 rule, including the issue of disclosure, by the time he received the BDO advice.  This was before any offers of securities relevant to the present case had been made. 

20. That having been said, subsequent events establish that Ms Donaldson must have known of the disclosure requirements as a result of the intervention of ASIC later in 2003.

21. ASIC contacted IFC in July 2003 in relation to seminars which the company had conducted in the Northern Territory.  The appellants consulted a solicitor, Mr Pedler, concerning the letter from ASIC and, after taking instructions, Mr Pedler provided information to ASIC which was sought by them.

22. On 18 August 2003 ASIC wrote to Mr Pedler advising that they had some further questions to raise concerning IFC’s fundraising activities. The letter was accompanied by a notice to IFC issued pursuant to s 30 of the ASIC Act requiring production of documents specified in the notice. The notice stated that the documents were being sought in order to ensure compliance with Part 6D of the Corporations Act.

23. On 11 September 2003 Mr Holmes of ASIC spoke to Mr Pedler in a telephone conversation and advised him that there appeared to have been a breach by IFC of Part 6D of the Corporations Act.  These concerns were confirmed in a letter from Mr Holmes to Mr Pedler dated 17 September 2003.  The letter stated in part:

    The documents produced by IFC indicate that it has entered into loan agreements with 31 persons, who in total have lent approximately $3.5m to the company. 

    
    

    Accordingly, the exemption for small scale offerings provided for by subsection 708(1) does not apply.  As a consequence, a disclosure document was required once one of the subsection 708(1) thresholds was reached.

    In the letter Mr Holmes asked Mr Pedler to confirm by 4.00pm on the following day that IFC would not make any further offers to borrow money unless one or other of the exceptions referred to in s 708 of the Corporations Act applied to the offer.  A copy of the 9 January 2003 letter from BDO to Mr Poumako was attached to Mr Holmes’ letter.

24. Mr Pedler gave evidence at the trial.  He said that he discussed the letter from Mr Holmes with both appellants.  He wrote to Mr Holmes on 18 September 2003 and advised:

    We further confirm that you raised the issue of the breach of chapter 6D of the Act in that the company has raised more than two million dollars in 12 months from more than 20 investors and furthermore that as a result of the provisions of section 113 of the Act the company is prohibited from engaging in any activity which requires the issue of a disclosure document.

    I met with the directors on Monday afternoon and they have resolved on the following course of action and have instructed us to implement it.

    1.The directors have resolved that IFC will convert to a public company limited by shares.  A formal meeting of the members will be held within 7 days to pass a special resolution to convert the company to a public company.  The documents will be lodged with ASIC not later than Friday 26 September 2003.

    2.The company will appoint Mr Barrie Mansom of MC Chartered Accounts, First Floor, 17 Bagot Street, North Adelaide as its auditor.  Mr Mansom will be requested to audit the company’s accounts as soon as he is able.

    3.The company will not offer any further securities until it is able to comply with all of its obligations under the Corporations Act 2001.

    4.The company will prepare an Offer of Information Statement which will be used for any future fundraising.

    Mr Pedler said in evidence that he later discovered further loan agreements had been entered into between IFC and investors after he sent the letter.

25. In cross-examination by Ms Donaldson’s counsel, Mr Pedler said he discussed the 20-12 rule with both appellants in September 2003 and expressed the view that they were in breach of the fundraising provisions of the Corporations Act.  It appears from Mr Pedler’s letter to Mr Holmes dated 18 September 2003 that he discussed ASIC’s concerns with Mr Poumako and Ms Donaldson on Monday 15 September 2003.

26. There is no doubt that, at least by 15 September 2003, Ms Donaldson was aware of the circumstances in which it was claimed IFC had breached the 20‑12 rule.  Those circumstances included the fact that there had been no disclosure under the Corporations Act.

27. It is clear that breaches of the Corporations Act took place after that time.  As I have said, the evidence established that the circumstance that disclosure was required was well known to Ms Donaldson by then.  She was also aware that the relevant disclosure had not been made.  It follows that the additional defence which she raised concerning the lack of knowledge of the requirement of disclosure and its relevance to recklessness could not avail her with respect to counts 14 to 22 inclusive and counts 36 to 44 inclusive of the information, all of which relate to events after 15 September 2003.  The investments which were the subject of these counts totalled $540,000.

28. In the light of these reasons I would dismiss the appellant Poumako’s appeal against conviction.  I would allow the appeal against conviction by the appellant Donaldson on counts 1 to 13 inclusive and counts 23 to 35 inclusive.  I would set aside the convictions on those counts and dismiss her appeal against conviction on the remaining counts. 

29. In my view the Court should hear counsel on whether Ms Donaldson should be re‑tried on counts 1 to 13 and counts 23 to 35. 

30. I would invite further submissions on the appeal against sentence by Mr Poumako and the sentence which should be imposed on Ms Donaldson in the event that the Court decides not to order a re-trial.

31. BLEBY J:             I agree that Mr Poumako’s appeal against conviction should be dismissed and that Ms Donaldson’s appeal against conviction should be allowed on counts 1-13 and 23-35 inclusive and that these convictions should be set aside. The convictions on the remaining counts should stand. I agree with the reasons of Duggan J.

32. I also concur in the need to invite further submissions as to whether Ms Donaldson should be retried on counts 1-13 and 23-35, and as to the appeals against sentence in respect of both parties, should there be no retrial.

33. DAVID J:  For the reasons given by Duggan J, I agree that Mr Poumako’s appeal against conviction should be dismissed. I also agree that Ms Donaldson’s appeal against conviction should be allowed on counts 1 to 13 and 23 to 35 inclusive, and that these convictions should be set aside. The convictions on the remaining counts should stand.

34. I also agree that the Court should hear further submissions as to whether Ms Donaldson should be retried on counts 1 to 13 and 23 to 35, and as to the appeals against sentence in respect of both parties should there be no retrial.