R v Hann No. Scgrg-98-100 Judgment No. S6742

[1998] SASC 6742

R V HANN

[1998] SASC 6742

Court Of Criminal Appeal: Doyle CJ, Olsson and Lander JJ

LANDER J

1     This is an appeal against sentence. 

2     On 27 March 1998 the appellant pleaded guilty to one count of fraudulent conversion.  The particulars of the offence were that:

“Between about the 16th day of February 1996 and about the 7th day of March 1996 at Marleston in the said State, being a director of Kearns Brothers (Auctions) Pty Ltd (“Kearns Brothers”), having received the sum of $820,650, for or on account of the persons who are entitled to the proceeds of sale of the motor vehicles sold by Kearns Brothers between about the 15th day of February 1996 and about the 8th day of March 1996, fraudulently converted part of the said sum, namely about $422,909.91, being the amount of general deficiency, to his own use or benefit, or the use or benefit of another person.” 

3     On 1 April 1998 a judge of the District Court sentenced the appellant to four years and six months imprisonment, and fixed a non-parole period of two years and three months. 

4     The appellant sought leave to appeal on two grounds:  first, that the sentence was manifestly excessive; secondly, that the learned sentencing judge erred as a matter of law in reducing the sentence only “by about 20 (twenty) per cent” on account of the appellant's plea of guilty. 

5     It is not entirely clear, from the hearing before the judge of this Court who granted leave, whether or not leave was granted in respect of the first ground of appeal.  

6     Mr Crocker, who appeared for the appellant in this Court, argued that the non-parole period fixed by the learned sentencing judge was, in the circumstances, manifestly excessive.  The Crown and the appellant tendered a statement of agreed facts before the learned sentencing judge.  It is not necessary, for an understanding of this matter, to recite all of those facts and I shall mention the essential matters only. 

7     The defendant purchased the business of Kearns Brothers in March 1987.  He and his wife became the directors and beneficial shareholders of the company.  The company leased the premises from the trust company Hatira Pty Ltd, which held the property on trust for the appellant’s family trust. 

8     Kearns conducted an auction business and conducted at least one auction per week of motor vehicles.  The terms of the arrangements between Kearns and the various vendors were that Kearns would receive payment on behalf of the vendors, deduct commission and charges from the proceeds, make appropriate payments to whichever financial institutions had an interest in the motor vehicles, and forward the net proceeds to the vendors.  The arrangements with the vendors provided that net payment was to be made within seven working days after receipt of the full payment from the purchaser. 

9     Originally, Kearns operated two bank accounts: a client account and trading account.  The client account received only those monies paid by purchasers at auctions.  It was from this account that the various fees, charges and payments to which I have referred were made.  The trading account was the account conducted by the business, and that account received commissions and charges payable from the client account.  The ordinary business expenses such as wages, rent, electricity and other trade creditors were debited to the trading account.  In the early 1990s the accounts were amalgamated and thereafter Kearns operated only one account and there was, therefore, an admixture of clients' monies and Kearns’ own monies. 

10   From the early 1990’s the business experienced financial difficulties and its financial position worsened throughout the early 1990s.  In the financial year ending 1992, the company made a net loss of $101,000; in 1993 a net loss of $98,720; and in 1994 a net loss of $27,000.   By the end of the 1994 financial year, the company had a net asset deficiency of $125,765.  Indeed, that figure really understated the net deficiency in the company's assets because a figure of $157,000 owed to vendors had not been brought to account. 

11   In January 1995 the company accountant met with the appellant and advised him that he had considerable concerns about the viability of the company.  He also advised the appellant that the merging of the two bank accounts might give rise to a misunderstanding on the part of trade creditors as to the true financial position of Kearns. 

12   During 1995 the company's position worsened.  The company's trade creditors were approximately two months in arrears and auction creditors, that is the vendors, were one and a half to two weeks in arrears.  On two occasions cheques were dishonoured.  By the beginning of December 1995, Kearns owed ETSA about $145,000 in unpaid vehicle sale proceeds in relation to auction sales since July 1995.  By December 1995, the appellant was aware of Kearns’ indebtedness to ETSA.  On 8 December 1995, Kearns paid $20,750 to ETSA and on 14 February 1996, paid a further $25,000 as part payment for the monies outstanding. 

13   In December 1995, the appellant was warned by the company's internal accountant that in conducting his business the way that he was, the appellant was using trust funds for working capital, which was illegal.  The accountant further advised the appellant that the company was trading whilst insolvent.  There is no doubt that at that stage the appellant was aware of the poor financial position of Kearns and he was aware that Kearns was relying on the funds generated from such auctions to pay vendors the amount equivalent to the proceeds of the sale of their motor vehicles from earlier auctions.  By January and February 1996 vendor payments were approximately three weeks behind. 

14   On 12 February 1996, the internal accountant wrote to the appellant stating:

1.     The company was unable to meet its financial obligations.

2...... That it had an estimated cash shortfall of between $750,000 and $800,000.

3.     Payments due to vendors were three weeks in arrears.

4.     Trade creditors were 60 to 90 days in arrears.

5...... The trading income of the company was not sufficient to cover operating expenses, and that the company was using the vendor's trust accounts as working capital, which was not only unacceptable but illegal.

6.That the directors were legally bound to cease trading forthwith and appoint a receiver.

7...... That each day the company continued to trade, the appellant was liable for a contravention of the Corporations Law and was open to charges of fraudulent misappropriation of trust monies.

15   Notwithstanding receipt of that advice, the appellant conducted three further auctions.  It was the conducting of those auctions and the misappropriation of the proceeds from those auctions which gave rise to the charge to which the appellant has pleaded guilty. 

16   It has to be understood, then, that the appellant committed this offence in circumstances where he knew that Kearns was unable to meet its financial obligations and pay its debts as and when they fell due.  He also knew that Kearns' financial position was such that any moneys received in relation to these auctions would not be paid to the vendors who had placed their motor vehicles in the auctions but would be used for the purpose of propping up an insolvent company and to pay other vendors whose money had been previously misappropriated. 

17   Three auctions were held on 16 February, 23 February and 1 March 1996 respectively.  The total funds received in respect of motor vehicle sales from the three auctions was $820,650.  Of that sum, $422,909.91 was converted by the appellant, who used those moneys as working capital for Kearns and to pay vendors who had previously placed their vehicles in the auctions and who had themselves not been paid. 

18   On 5 March 1996, the appellant was interviewed by detectives of the Fraud Task Force and by a member of the Australian Securities Commission.  During that interview he conceded that the company had a cash flow problem but he said that the company was solvent, in that it would be able to pay all of its outstanding debts after selling the business, the property owned by the trust company and the appellant's house.  The appellant admitted in that interview that the company had been funding payments to vendors out of future sales.  Shortly thereafter, the appellant left the country with his wife, and two days later an administrator was appointed to the company.  The appellant returned to Australia on 7 April 1996, when he was arrested in connection with these matters.  In the meantime, the appellant had written to the Prime Minister of Australia in connection with his problems.  The letter acknowledged the very tight position the company was in immediately prior to early 1996.  In that same letter, however, the appellant sought to lay the blame for the company's financial position at the feet of a number of other persons, including the former Prime Minister and members of the ASC. 

19   Originally the appellant was charged with 58 counts of fraudulent conversion between 15 February 1996 and 7 March 1996.  The matter was first listed for trial in the first week of August 1997.  On about 30 July 1997, the Crown laid count 59, which is the charge to which the appellant eventually pleaded guilty.  The appellant's counsel sought an adjournment of the trial.  The Crown suggested the appellant could be ready for trial within a week, but the appellant's counsel sought and obtained more time, and the matter was adjourned to a status conference.  The transcript indicates that, to that point of time, it was the appellant's intention to plead not guilty.  Counsel for the appellant continued to protest the appellant's innocence during status conferences held throughout 1997.   For example, on 8 October, his counsel said: 

“... my client is confident that an examination of books by our own accountant will provide him with a defence that he does need to this new charge.”

20   On the same day, counsel indicated that the appellant was ready for trial on the 58 counts originally laid.  On 29 October 1997, counsel for the appellant indicated that funds had been provided and that the appellant was ready for trial.  The trial was then set for 15 days commencing on 9 March 1998. 

21   The appellant first indicated to the Crown that he would be pleading guilty on 18 February 1998.  The trial was adjourned until 27 March 1998, and at that stage the appellant entered his plea in respect of the 59th count and the Crown entered a nolle prosequi in respect of the other 58 counts.  A plea of guilty may be taken into account in mitigation of sentence.  The circumstances in which it might be a matter of mitigation were identified in Shannon (1979) 21 SASR 442 and need no elaboration.

22   Two things must be remembered.  First, a plea is not a matter of mitigation, if it is entered not because of remorse or contrition or to assist in the administration of justice, but is only a recognition of the inevitability of the verdict.  Secondly, even if a plea has been entered in circumstances which could give rise to a matter of mitigation:

“the judge is not bound to make a reduction, but should consider the plea with all the other relevant factors in arriving at a proper sentence.” [per King CJ at 453]

23   In relation to the question of a discount, the learned sentencing judge said:

“I accept that you now understand the enormity of your illegal conduct and that you are genuinely contrite.  I have also had regard to your age and health, and they are matters which I have given anxious consideration to in determining the appropriate penalty.

I also take into account your plea of guilty, and the cost and expense you have saved the community by pleading guilty.  You are entitled to a substantial discount, and I have reduced the sentence I would have considered appropriate, had it not been for your plea, by about 20 per cent.”

24   The appellant’s primary complaint on this appeal is that a reduction of 20 per cent does not adequately reflect the contrition and remorse exhibited and the saving of cost and expense to the State by reason of the appellant's guilty plea. 

25   Whilst it might be accepted, as the learned sentencing judge pointed out, that at the time the appellant entered his plea he was genuinely contrite, it had taken the appellant some considerable time for him to reach that state of mind.   In March 1996, when interviewed by the police, he did not exhibit any contrition or remorse.  Whilst absent overseas, he wrote to the Prime Minister blaming others for his financial position and seeking the Prime Minister's intervention on his behalf.  More than 18 months later, he still intended to plead not guilty to the 59 counts which then comprised the information.  It was only about three weeks before trial, which was about two years after first spoken to by the police and the Australian Securities Commission in relation to this matter, that he advised the Crown that he would plead guilty to the 59th count. 

26   Having regard to the fact that this offence was committed in circumstances where the appellant knew that Kearns Brothers was insolvent and the offences were committed for the purpose of using other persons' money to restore the company to solvency, one would have thought that the appellant would have reached a state of contrition and remorse significantly earlier than he did. 

27   The learned sentencing judge recognised that the appellant had taken time to come to terms with his own conduct.  His late show of contrition prevented the appellant from any early cooperation with the Crown.  No doubt they were important factors for the learned sentencing judge in fixing the discount at 20 per cent. 

28   There is no doubt that it is true that the appellant's plea saved the State considerable cost and expense.  About 150 persons were indicated as witnesses on the back of the information.  The trial was listed to take three weeks.  By the same token, it is not easy to determine whether or not the plea was entered for the purpose of saving expense or because of a recognition of the inevitability of the verdict of a jury.  Having regard to the evidence available from the internal and external accountants, the parlous state of the company's finances, the written evidence documenting the advice given to the appellant before he conducted the final three auctions and the distribution of moneys from the proceeds of those auctions, it is difficult exactly to understand what defence the appellant would have presented to the court.   It is right, however, to say that the Crown recognised that the plea did mean a significant saving in cost and expense. 

29   The appellant did not, prior to his indication of a plea, offer any real cooperation to the Crown in relation to these matters.  Indeed, as I have said, he claimed through counsel, as late as October 1997, that he had a defence to this charge and the charges which were later subject to the nolle prosequi.  Notwithstanding all of those matters, the learned trial judge was right, in my opinion, to give some credit to the appellant for the contrition and remorse which he exhibited at the time of the entering of his plea and for the cost and expense which the plea has saved.  The learned trial judge said that the appellant was entitled to a substantial discount.  In my opinion, in the circumstances of this case, a reduction of 20 per cent for the matters to which I have referred was, as was described by the learned sentencing judge, a substantial reduction.  It was in any event certainly within the range of an exercise of appropriate sentencing discretion.   Whilst another judge may have given a different discount than that given by the learned sentencing judge, that is not the question.  The question for this court is whether it could be said that the learned sentencing judge erred in the exercise of his sentencing discretion.  It is impossible, in my opinion, to say that such an exercise of discretion in the reduction of the sentence by 20 per cent was outside the proper exercise of the discretion reposing in the sentencing judge. 

30   It was put on this appeal that if this court was against the appellant in relation to the primary argument - that is, that the sentence ought to have been reduced by more than 20 per cent - the non-parole period of two years and three months fixed by the learned sentencing judge was manifestly excessive.  That submission, in my opinion, is not tenable.  The non-parole period fixed by the learned sentencing judge was, in the circumstances, relatively low.  In fixing the non-parole period, the learned sentencing judge took into account all of the matters relevant to the appellant.  In no way can it be said, in my opinion, that the non-parole period was manifestly excessive. 

31   In my opinion, the appeal ought to be dismissed. 

DOYLE CJ:I agree that the appeal should be dismissed.  I agree with the reasons of Lander J, and there is nothing that I wish to add to those reasons. 

OLSSON J:       I also agree. 
DOYLE CJ:       The order of the court is: appeal dismissed.