R v Jackson - [2005] SASC 365

SUPREME COURT OF SOUTH AUSTRALIA
(Criminal: Application)
R v JACKSON
Judgment of The Honourable Justice Gray
23 September 2005
CORPORATIONS - RECEIVERS, MANAGERS AND CONTROLLERS
CRIMINAL LAW - GENERAL MATTERS - CRIMINAL LIABILITY AND CAPACITY - DEFENCE MATTERS - INSANITY - DISEASE OF THE MIND, MENTAL DISEASE OR MENTAL INFIRMITY
Application for leave to appeal against conviction - applicant convicted by jury verdict of five counts of fraudulent conversion - appeal on grounds that trial judge erred in concluding that objective elements of offences had been established and jury verdicts unsafe and unsatisfactory because jury should have found on evidence that applicant was mentally incompetent - consideration of objective elements of offence - discussion of effect of floating charge upon appointment of receiver and manager - application for leave refused.
Crimes Act 1914 (Cth) s 71(1); Corporations Law s 601AD, s 601AE, referred to.
Evans v Rival Granite Quarries Ltd [1910] 2 KB 979; Telecom v Russell Kumar & Sons (1992) ACSR 24; Relwood Pty Ltd v Manning Homes Pty Ltd No 2 [1992] 2 Qd R 197, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"floating charge"

R v JACKSON
[2005] SASC 365
Criminal
GRAY J:

This is an application for leave to appeal.
Introduction
The applicant, John Henderson Jackson, was convicted by jury verdict of five counts of fraudulent conversion. Seven counts were contained in an indictment issued pursuant to section 71(1) of the Crimes Act 1914 (Cth). That section provides:
Any person who steals or fraudulently misappropriates or fraudulently converts to his own use any property belonging to the Commonwealth, or to any public authority under the Commonwealth, shall be guilty of an offence.
The trial Judge found that there was no case to answer on counts 1 and 2. The applicant was convicted on counts 3 to 7.
The third count was charged in the following terms:
On the 13^th December 1999 at Adelaide, or another place, John Henderson Jackson fraudulently converted to his own use property belonging to a public authority under the Commonwealth, namely the Australian Securities and Investments Commission, contrary to section 71(1) of the Crimes Act 1914
Particulars of Offence
1.On the 15^th of February 1990 John Henderson Jackson was appointed receiver manager of Edcom Real Estate Pty Ltd;
2.Pursuant to that appointment John Henderson Jackson received funds belonging to Edcom Real Estate Pty Ltd and deposited those funds with the Bank of South Australia in the name of Edcom Real Estate Pty Ltd (receiver and manager appointed) thereby creating a debt owed by the Bank of South Australia to Edcom Real Estate Pty Ltd (receiver and manger appointed) (“the debt”);
3.On the 10^th of July 1999 Edcom Real Estate Pty Ltd was deregistered and the said debt vested in the Australian Securities and Investments Commission;
4.On the 13^th of December 1999 John Henderson Jackson caused the amount of $9,000 to be withdrawn from the said funds and deposited to his own business account at the Bank of South Australia thereby reducing the debt.
The remaining counts 4 to 7 were charged in similar terms, the only differences being the dates upon which the various stages of the offence were said to have occurred and the amounts of monies withdrawn.
Application for leave
Two grounds were advanced on the application for leave to appeal. First it was said that the trial Judge was in error in ruling that there was a case for the applicant to answer on the objective elements in respect of each count. It was said that the applicant could not have stolen or fraudulently converted property of the Commonwealth or any public authority under the Commonwealth because he was legally entitled to the property pursuant to the terms of a debenture and its effect in law.
Second, it was submitted that the jury’s verdicts were unsafe and unsatisfactory on the basis that the jury ought to have concluded, on the evidence, that the applicant was mentally incompetent.
The issue on this application is whether on either of the grounds advanced there is an arguable case sufficient for a grant of leave to appeal.
Objective elements
It was argued that section 71 of the Crimes Act makes it an offence to fraudulently convert property belonging to the Commonwealth or to any public authority under the Commonwealth. It was the applicant’s case that the property in question, monies in a bank account, was not the property of the Commonwealth or any public authority under the Commonwealth.
The matter was addressed by the trial Judge in published reasons:
In March of 1995 a total of $79,258.57 was received by the accused in his capacity as receiver manager of [Edcom Real Estate Pty Ltd]. The sum was banked by the accused into two bank accounts, one being an investment account in the name of Edcom Real Estate Pty Ltd (Receiver & Manager Appointed), and the other a cheque account in the name of Edcom Real Estate Pty Ltd (Receiver & Manager Appointed).
...
On the 7^th July 1999 Edcom Real Estate Pty Ltd was deregistered by the Australian Securities & Investments Commission.
...
Between the 9^th June 1999 and the 29 June 2000 there were a number of withdrawals made from the Edcom Real Estate Pty Ltd (Receiver & Manager Appointed) account at the Bank of South Australia and corresponding deposits into either the personal account or business account of the accused. ...
Seven of those withdrawals are the subject of counts 1 to 7 on the Information. Six of those withdrawals were in evidence before the jury as other uncharged acts. The total of the amounts withdrawn during that period is $75,850.
...
In any event it seems to me that whatever the usual practice was, the basis on which I am to assess the accused’s conduct in this case, in relation to the withdrawal of sums of money some purporting to be for fees and remuneration and some not supported by any documentation, is against the background of the debenture agreement and the deed of appointment of receiver of the 15^th February 1990.
...
It is trite law that in order for there to be a fraudulent conversion there must be a conversion of property to which the accused was not entitled.
...
It is one of the objective elements of the offence that the prosecution prove that the property the subject of the conversion “belonged to a public authority under the Commonwealth, namely the Australian Securities & Investments Commission” (ASIC).
I am satisfied that by virtue of the operation of s 601 AD and s 601 AE of the Corporations Law that upon the deregistration of Edcom Real Estate Pty Ltd on the 7^th of July 1999, the assets of that company became the property of ASIC for the purposes set out in that legislation. It is plain from the legislation that the property of the company remains subject to all of the liabilities which existed at the date of its deregistration.
Furthermore, the Australian Securities & Investment Commission (ASIC) is by virtue of the definition to be found in the Crimes Act a public authority under the law of the Commonwealth.
Counsel for the accused sought to persuade me that the assets of the company prior to the date of deregistration did not vest in the company but in the receiver. This argument cannot succeed. Whilst the receiver does take control of the property a long line of authorities establishes the unequivocal proposition that upon appointment as a receiver a receiver becomes the agent of the company but the assets and undertakings of the company do not vest in the receiver. Australian & Overseas Telecommunications Corporation Ltd v Russell Kumar & Sons Pty Ltd 10 ACSR 24 @ p 29. Relwood Pty Ltd v Manning Homes (1992) 2 Qd R 197 @ p.20. Bolton v Darling Downs Building Society (1935) Qd R p 237 @ p.243. Keay & Murray Insolvency Personal & Corporate Law in Practice, [4^th Ed @ p.430].
For these reasons I am satisfied that there is a case to answer on the objective elements concerning counts 3 to 7. I am not satisfied that the prosecution is capable of satisfying the jury beyond reasonable doubt as to the existence of the element of conversation [sic] with regard to counts 1 and 2. For that reason I intend to direct the jury as a matter of law that the objective elements in counts 1 and 2 have not been proved.
The applicant sought to challenge the reasoning of the trial Judge. Counsel argued that the debenture deed appointing the applicant as receiver and manager of Edcom Real Estate Pty Ltd was critical. Counsel submitted that the applicant was entitled to the property by virtue of the debenture, a floating charge, which, upon crystallisation, had the effect of automatically transferring the legal right to any property belonging to Edcom Real Estate Pty Ltd to Satisfac Credit Union, the debenture holder, and thereby to the applicant himself as the receiver and manager. The applicant pointed to the preamble to the debenture, which recited the debt of the company, Edcom Real Estate Pty Ltd to Satisfac Credit Union. The preamble then described and recited that the object of the security was to secure certain loan agreements presently existing and those that may have arisen from time to time with additional advances to Edcom Real Estate Pty Ltd.
Clause 22 of the debenture deed provided the circumstances in which the mortgagee could appoint a receiver or receiver and manager after the security became enforceable and set out the powers of the receiver and manager. Those powers included the power to sell or otherwise dispose of the company’s business by auction or contract. Clause 23 of the debenture empowered the receiver and manager to pay and apply monies at his discretion in certain specified respects including the payment to the debenture holder of all monies due.
The deed of appointment of the applicant by clause 5 provided that he would act as receiver. In particular clause 5.1 provides:
Until otherwise directed by the Mortgagee he will pay into a Bank to the credit of an account or accounts to be opened in the books of the Bank bearing his own name, entitled “Receiver’s Account” or some similar name and specifying the name of the Mortgagor all money and negotiable instruments which he may from time to time receive in respect of the mortgaged property under or by virtue of the Charge immediately they are received by him or come under his control and subject to any statutory provision will apply that money in the manner specified in the Charge or if the manner of application is not specified –
-in payment of his remuneration and all costs charges and expenses properly incurred by him as Receiver or by the Mortgagee in connection with the realisation of the Mortgaged Property.
-then, in or towards satisfaction of all liabilities of the Mortgagor to the Mortgagee secured by the Charge.
The applicant accepted that when Edcom Real Estate Pty Ltd was deregistered on 7 July 1999 it ceased to exist by operation of law and its property vested in Australian Securities and Investment Commission (“ASIC”). However, it was said that this was only to the extent that the company had been possessed of the property immediately before deregistration. It was contended that by clause 3 of the debenture a specific and floating charge of the assets of Edcom Real Estate Pty Ltd had been granted and on the appointment of the applicant as receiver and manager the floating charge crystallised. It was argued that as the duty of the applicant under the deed was to apply all monies received under the mortgage deed in payment of certain costs charges expenses and outgoings, in payment of his own remuneration, and then in payment of the debenture holder’s debt, that legal title had passed either to the debenture holder or to the applicant as agent for the debenture holder. In these circumstances legal title to the relevant assets had not passed to ASIC on the company’s deregistration.
This ground raises a question of mixed law and fact. As earlier observed, the applicant was appointed receiver of Edcom Real Estate Pty Ltd. That company was deregistered on 7 July 1999. By operation of section 601AD and section 601AE of the Corporations Law the assets of the company vested in ASIC at the time of deregistration. At that time of deregistration monies were held in the company’s bank accounts. In respect of counts 3 to 7, the subject of the convictions, the applicant withdrew funds from those bank accounts after deregistration and applied those funds for his own personal use.
The nature of a floating charge was discussed in Evans v Rival Granite Quarries Limited.[1] Buckley LJ described a floating charge as a present security, rather than a future security, in the sense that it presently affects all the assets of the company within its scope. However, as Buckley LJ pointed out, a floating charge is not a specific security in that it cannot be positively asserted that the assets of the company are mortgaged to the holder of the charge. A floating charge operates so that the mortgagor is able to deal with the assets without having to seek the approval of the mortgagee to do so. This is so until an event occurs that causes the charge to crystallise into a fixed security. As such, a floating charge is succinctly described as a mortgage presently affecting all assets expressed to be included in it, but not specifically affecting any of them until the occurrence of an event that causes the security to crystallise as regards all the assets.
[1] Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 at 999-1000.
Crystallisation may be brought about in various ways. A receiver may be appointed, or the company may go into liquidation and a liquidator be appointed, or any event may happen which is defined as bringing to an end the right of the company to carry on business.
Upon his appointment as receiver, the applicant became the agent of the debenture holder but the assets and undertaking of Edcom Real Estate Pty Ltd did not vest in the receiver. As observed by O’Brien J in Telecom v Russell Kumar & Sons: [2]
When the receivers were appointed by the chargee the floating charge over the assets and undertaking of the company crystallised and an equitable interest in the assets and undertaking passed to the chargee: Re Margart Pty Ltd (in liq); Hamilton v Westpac Banking Corp (1984) 9 ACLR 269; 2 ACLC 709.
Upon appointment the receivers became the agents of the company but the assets and undertaking of the company did not vest in the receivers. ... Cf O’Donovan: Company Receivers and Managers at para 8.90; Re Sartoris’s Estate [1982] 1 Ch 11; Re Scottish Properties Pty Ltd (1977) 2 ACLR 264. The deed of charge also provided ... that if the chargee notified the company in writing that the receiver is to act as the agent of the chargee the receiver would cease to be the agent of the company. The receivers were empowered by ... of the charge to sell the business and assets of the company.
[2] Telecom v Russell Kumar & Sons (1992) 10 ACSR 24 at 29.
A receiver takes control of the property of the company and does so as agent for the mortgagee of the debenture. However, the assets and the takings of the company do not vest in the receiver. He or she deals with them as agent for the debenture holder in accordance with the terms of the debenture deed. The property remains that of the company until dealt with pursuant to the receiver’s powers.
The observations of McPherson SPJ in Relwood Pty Ltd v Manning Homes Pty Ltd No. 2[3] are apposite:[4]
The effect (or the absence of effect) of a garnishee order upon the property in a debt is one end of the problem in this case. The other is the consequences of crystallisation of a floating charge. Once it is accepted that even a garnishee order absolute effects no transfer of any interest in the debt attached, the problem largely solves itself. Even before its crystallisation a floating charge is said to be an “existing” or a “present” charge; Evans v Rival Granite Quarries Limited [1910] 2 KB 979, at 994, 999; but its operation as a security on specific assets is deferred to the happening of a defined future event that will cause it to become a fixed security: ibid, at 999, per Buckley LJ. In the interim the chargee no doubt has rights at least as extensive as those of the assignee of future property described by Dixon CJ in Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1, 26-27; but, even if it is then properly considered an “equity”, the right before crystallisation is nevertheless not (as Walton J in Cairney v Back [1906] 2 KB 746, 752, seemed disposed to think) an equity of such a kind as to prevail in a competition with a proprietary interest in a particular asset. Not until crystallisation does the charge fix and attach specifically to any asset. Once it does so, the company becomes trustee of the asset for the benefit of the chargee as equitable mortgagee of that asset, and must deal with it accordingly.
[3] Relwood Pty Ltd v Manning Homes Pty Ltd No 2 [1992] 2 Qd R 197.
[4] Relwood Pty Ltd v Manning Homes Pty Ltd No 2 [1992] 2 Qd R 197 at 201.
The authorities, as well as learned texts,[5] support the conclusion reached by the trial Judge that the objective elements of the offence had been made out. The relevant asset in this case, being monies to the credit of bank accounts in the name of the company, remained the property of Edcom Real Estate Pty Ltd and was held by that company as trustee of the charged assets for the benefit of the secured creditor. On deregistration the assets vested in ASIC and became property belonging to a public authority under the Commonwealth.
[5] See Murray, M, Keays’s Insolvency: Personal and Corporate Law and Practice (5^th ed, 2005) at [19.365]; O’Donovan, J, Companies Receivers and Administrators (looseleaf) at [8.1450]-[8.1530].
It is not arguable that the property the subject of the fraudulent conversions was not the property of ASIC.
Mental incompetence
The second ground advanced was that the verdicts were unsafe and unsatisfactory on the basis that from the whole of the evidence, and in particular having regard to the evidence of Dr Cotton, the jury ought to have concluded that the applicant was mentally incompetent at all material times and therefore incapable of committing the charged offences.
At trial, the applicant raised mental incompetence as a defence pursuant to section 269C of the Criminal Law Consolidation Act 1935 (SA). The applicant was presumed to be mentally competent in accordance with section 269E and bore the onus, pursuant to section 269F(3), of satisfying the court on the balance of probabilities that at the time of the commission of the offence he was mentally incompetent.
The jury found that the presumption of mental competence had not been displaced.
The applicant called Dr Hawkes, his general practitioner, Dr Harding, his endocrinologist and Dr Cotton, his psychiatrist. The prosecution called psychiatrists, Drs Raeside and O’Brien.
The effect of the psychiatric evidence was that the applicant suffered from depression and anxiety. Dr Cotton considered the applicant suffered delirium caused by a diabetic condition and an associative disorder and was mentally incompetent at the relevant time. However Drs Raeside and O’Brien were of the view that this did not lead to mental incompetence.
On the hearing of the application for leave only one submission was advanced. It was said that Drs Raeside and O’Brien had either overlooked or given insufficient weight when forming their opinions to a diabetic condition suffered by the applicant. It was said in these circumstances that Dr Cotton, who relied on the diabetic condition and regular, very high blood sugar levels for his diagnosis of delirium, should be preferred. This, it was said, should have led to the jury being satisfied on the balance of probabilities that mental incompetence was established. However, the evidence did not support the high blood sugar levels spoken of by Dr Cotton and in particular the evidence of Dr Harding and Dr Hawkes did not support the premise underlying Dr Cotton’s opinion.

Further Drs Raeside and O’Brien both had access to Dr Cotton’s report before giving evidence and were aware of the allegations relating to the diabetic condition. Another factor that may have weighed in the jury’s deliberations was that Dr Cotton had a longstanding social relationship with the applicant, which extended from school days. A further relevant consideration was that, at particular times, the applicant’s conduct was inconsistent with a person being in a state of delirium. Dr Cotton’s explanation for this inconsistency was that the applicant’s delirium fluctuated.
In these circumstances I would refuse leave on this ground. I do not consider this ground to be arguable. Counsel did not suggest that there were any other factors or arguments that could support this ground.
Conclusion
Leave to appeal is refused.