R v McLachlan - [2004] SASC 277

SUPREME COURT OF SOUTH AUSTRALIA
(Court of Criminal Appeal)
R v MCLACHLAN
Judgment of The Court of Criminal Appeal
(The Honourable Chief Justice Doyle, The Honourable Justice Perry and The Honourable Justice White)
15 September 2004
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DIRECTORS AND OTHER OFFICERS - CRIMINAL AND STATUTORY CIVIL LIABILITY OF OFFICERS - IMPROPER USE OF POSITION - SENTENCE OR PENALTY
CRIMINAL LAW - APPEAL AND NEW TRIAL AND INQUIRY AFTER CONVICTION - APPEAL AND NEW TRIAL - APPEAL AGAINST SENTENCE
Appeal against sentence - appellant convicted and sentenced to 9 years, with a non-parole period of 5 years, for 55 counts of improper use of position to gain advantage contrary to s 232(6) and s 1317FA(1) of the Corporations Law - whether sentence manifestly excessive - whether sentence manifestly excessive as significantly higher than sentences imposed for comparable offences - whether insufficient weight given to appellant's mental condition - whether insufficient weight given to appellant's father's involvement - whether too great an emphasis placed on element of general deterrence - whether the reimbursement of investor's losses a factor which should have been taken into consideration in sentencing - appeal dismissed by majority.
Corporations Law s 232(6), s 1317FA(1); Criminal Law (Sentencing) Act 1988 (SA) s 18A, referred to.
Mason-Stuart v R (1993) 61 SASR 204 , distinguished.
The Queen v Nicholls (1991) 160 LSJS 204; R v Rich and Hynes (1997) 68 SASR 390; R v Hunter (1984) 36 SASR 101; R v Cavanagh [1999] SASC 418, considered.

R v MCLACHLAN
[2004] SASC 277
Court of Criminal Appeal Doyle CJ, Perry and White JJ

DOYLE CJ Mr McLachlan has appealed against a sentence of imprisonment imposed by the District Court. A Judge of that Court sentenced him to imprisonment for nine years, in relation to which term of imprisonment the Judge fixed a non-parole period of five years. The sentence was a single sentence of imprisonment imposed pursuant to s 18A of the Criminal Law (Sentencing) Act 1988 (SA) in respect of 55 different offences.
Mr McLachlan has appealed on the ground that the sentence is manifestly excessive.
Facts
Mr McLachlan was found guilty by a jury after a long trial. He was found guilty on 55 counts in all. Each count charged him with the offence of being an employee of a corporation who made improper use of his position to gain an advantage for himself, contrary to s 232(6) and s 1317FA(1) of the Corporations Law. By virtue of schedule 3 to the Corporations Law the maximum penalty for each offence is a fine of $200,000.00 or imprisonment for five years, or both.
Mr McLachlan was employed by Thompson Brindal Ltd., (“the firm”) which carried on business as a stockbroker. He began employment there in 1989. In 1992 he became a client adviser. He was authorised to trade by computer in shares and options on the Australian Stock Exchange. He took instructions directly from clients.
He was also permitted by the firm to trade on the Australian Stock Exchange on his own account, and did so.
The clients of the firm included a large number of persons who were also clients of RetireInvest. RetireInvest carried on business throughout Australia as a financial planner, investing money for clients. RetireInvest conducted its business through a number of franchises, trading under that name. Mr Laming apparently engaged the firm to act as stockbrokers for the RetireInvest clients. Mr Mennie was handling the work of the RetireInvest clients.
In late 1992 it emerged that substantial losses had been made by the RetireInvest clients as a result of option trading by Mr Mennie.
In December 1992 a meeting took place involving Mr McLachlan, Mr Laming and Mr McLachlan’s father, who was Managing Director of the firm. Mr McLachlan’s father told Mr Laming about the losses made on the options. According to the Judge, at the meeting in December 1992 Mr Laming was given assurances that Mr McLachlan, who had taken over the work of these clients, “would be able to trade out of that losing position in the following months”. On that basis, Mr Laming did not inform his RetireInvest clients of the losses, and according to the Judge may have taken steps to conceal the losses from them.
The arrangement that the three men reached seems to me to have been a dishonest arrangement but I bear in mind that we have not heard from the other participants. It was not the basis of the charges laid against Mr McLachlan. I accept that the fact that Mr McLachlan’s father was Managing Director of the firm played a part in Mr McLachlan becoming involved in the scheme, but there is no suggestion that Mr McLachlan resisted being involved in the scheme.
Be that as it may, Mr McLachlan took over responsibility for stockbroking work on behalf of the RetireInvest clients.
That trading continued for some time. I understand that those involved continued to conceal the true position from the RetireInvest clients. There appears to be no information as to the extent to which the losses were recouped.
The offences for which Mr McLachlan was convicted were committed between April 1996 and March 1997. They fell into two categories. The first category comprises 43 counts. In each case Mr McLachlan transferred into the name of a RetireInvest client an option that Mr McLachlan had purchased in his own name, and on which he was facing a loss. The result was that the RetireInvest client incurred the loss that Mr McLachlan would have made. The second category comprised 12 counts. In each of those cases Mr McLachlan transferred options purchased by other clients of the firm (with whom Mr McLachlan had an association) to RetireInvest clients, causing them to incur the loss that would otherwise have been incurred by the client with whom Mr McLachlan was associated.
In total the losses unlawfully attributed to RetireInvest clients amounted to almost $570,000.00. The sentencing Judge was apparently not told how much of this loss would have been incurred by Mr McLachlan, but for the unlawful acts. It must have been a substantial proportion of the total. At the hearing of the appeal we were told that in the period in question Mr McLachlan made an apparent profit of about $183,000.00 by trading on his own account. Obviously, but for the offences that profit would not have been made, and a significant loss would have been made.
Ultimately the RetireInvest clients were reimbursed through an indemnity scheme financed through RetireInvest. RetireInvest became involved, we were told, because of the misconduct of Mr Laming, the franchisee. However, as the Judge said, the clients must have suffered considerable anxiety and distress until it became clear that they would be reimbursed.
Reasons for sentence
The Judge rightly identified the gravity of the offending conduct as arising from the number of separate criminal acts (55), the fact that the offences were committed over a sustained period (10 months), the large amount of money involved, the serious breach of trust, and the fact that the only apparent motivation for the offences was greed. The original scheme to conceal the losses made by the RetireInvest clients appears to have been, as I have said, a dishonest one. But these offences did not arise directly from that. Mr McLachlan’s role as the person handling the work of these clients merely gave him the opportunity to commit the offences. The offences were a gratuitous addition to the scheme.
Mr McLachlan was 36 years of age when sentenced. He had had an unremarkable background. He grew up in apparently comfortable circumstances. He was a highly skilled oarsman, representing Australia at the Seoul Olympics in 1988. He joined the firm in 1989 aged 21. He was 24 years of age when he was given the task of attempting to recoup the losses that Mr Mennie had made. The Judge said that he was “comparatively inexperienced”. However, as I have said, the offences were not the product of the attempt to recoup the losses. Indeed, they meant that the prospects of that attempt succeeding were necessarily diminished.
Mr McLachlan apparently remained involved in the sport of rowing, coaching at a senior level. A number of people with whom he had been involved in this way spoke highly of him, in references that were made available to the Judge.
In late 1994 Mr McLachlan had been referred to Dr Gauvin, a psychiatrist, because he was suffering from fluctuating mood states, and had undergone a dramatic weight increase. The history obtained by Dr Gauvin was that Mr McLachlan’s weight had fluctuated, with some successful attempts to reduce his weight. He consulted Dr Gauvin from time to time, and received medication and treatment for depression. He stopped consulting Dr Gauvin in July 1997. During this time he had some success in reducing his weight.
In a report of 1 July 2003 Dr Gauvin, who had been informed of the offending conduct during 1996 and early 1997, made the following comment:
“The clear-cut relationship between his psychiatric illness and his work behaviour has not been established, but one could postulate, in terms of his illness, that this would have a bearing on his level of confidence and his level of appreciation of right/wrong of matters. Additionally, his personality has, at times, demonstrated aspects of self-destructiveness and irresponsibility which I have alluded to.”
Mr McLachlan consulted Mr Bowman, another psychiatrist, in January 2000. Dr Bowman saw Mr McLachlan on three occasions, and then treatment resumed in 2001 and continued thereafter. Not surprisingly, Dr Bowman said that Mr McLachlan had experienced considerable difficulty coping with the stress of the pending prosecution. In a report dated 11 November 2003 Dr Bowman said that Mr McLachlan was making some improvement in coping with his mood instability, and that his prognosis remained guarded.
The Judge took account of this history of depression, and Mr McLachlan’s problem of excessive weight. The Judge accepted that Mr McLachlan genuinely regretted what he had done, and the Judge accepted the opinion of Dr Bowman that Mr McLachlan had experienced considerable “psychological and psychiatric turmoil” in the period after the offences were committed.
The Judge said:
“Although your mental condition, at the time of committing these offences, is a factor to be taken into account by way of mitigation because it may assist in explaining your actions and, to some extent, reduce your moral culpability, I do not consider that this is a case in which the principle enunciated by King CJ in Mason-Stuart v R (1993) 61 SASR 204, at 205 to 206 (to which Mr Braithwaite referred) should be applied to the point of giving little or considerably reduced weight to the element of general deterrence in sentencing you. Any mitigating effect of your mental condition, at the relevant times, was, in my view, far outweighed by the gravity of your offences and the importance in these circumstances, of the element of general deterrence (see R v Wiskich (2000) 207 LSJS 432, at 460).
The Judge took account of the fact that when the offences were committed Mr McLachlan was comparatively young, and that his prospects of rehabilitation were good.
There was of course no reduction in the sentence on account of a plea of guilty.
Issues on appeal
Mr Braithwaite, counsel for Mr McLachlan, made the point that Mr McLachlan became involved in the affairs of RetireInvest at the insistence of his father, in an attempt to conceal the losses made by Mr Mennie. This is true, but as I have already said the offending conduct was a gratuitous addition to the original scheme. There is no suggestion that the father’s influence played a part in the offending conduct.
Mr Braithwaite said that the fact that the clients were reimbursed through RetireInvest was fortuitous, but nevertheless a material fact. However, all it means is that the loss was transferred from the clients to RetireInvest, although it can be said that it was transferred because of the background involvement of Mr Mennie. This circumstance does not in any way reduce the gravity of the offences. It merely removes the circumstance of aggravation, namely, that individuals had lost their savings and had no chance of restitution: The Queen v Nicholls (1991) 160 LSJS 204 at 207.
Not surprisingly, Mr Braithwaite emphasised Mr McLachlan’s history of depression, and an associated problem of low self-esteem. However, as appears from my summary of the facts, there is no direct connection between these matters and the offending conduct. They remain relevant as a burden that Mr McLachlan had to cope with, but their relevance is no greater than that. The Judge made appropriate allowance for this. I agree with the Judge’s comment, in the passage set out above from his reasons, that this is not a case like Mason-Stuart in which the offender’s mental condition has diminished his subjective responsibility in such a way as to limit the extent to which considerations of general deterrence should affect the punishment. I do not accept the submission that the final sentence in the passage set out above indicates that the Judge ignored Mr McLachlan’s psychiatric history. The Judge was simply making the point that it was appropriate to take account of the need for general deterrence despite this history.
Mr Braithwaite submitted that the lengthy period between the offending conduct and trial, during which Mr McLachlan had the prosecution hanging over him, was something to be taken into account, as was the fact that during this period Mr McLachlan appeared to be on the way to reform. But there is no suggestion that the delay was attributable to any failure by the prosecution to act promptly. The investigation into the offence appears to have been a complex one. The Judge made appropriate allowance for Mr McLachlan’s prospects of rehabilitation.
That leaves Mr Braithwaite’s submission that the sentence is out of line with sentences for comparable offences, indicating that it is excessive. Mr Braithwaite referred to a number of sentences, including sentences imposed by South Australian courts in R v Rich and Hynes (1997) 68 SASR 390 and in R v Hunter (1984) 36 SASR 101. We were also referred to R v Cavanagh [1999] SASC 418.
My view is that the sentence imposed is at the high end of the range, but nevertheless within the range indicated by those cases, to the extent that, allowing for relevant differences, those cases do indicate a range. Although Mr McLachlan’s offences were committed before the decision of this Court in Cavanagh, I repeat the observation that I made in Cavanagh at [2]:
“The sentence is high compared with other sentences for similar offences. Some reduction is appropriate on that basis. But, in my opinion, the time has arrived for an increase in the sentences imposed for substantial frauds of this kind for the reasons indicated by Debelle J. This was what Cox J foreshadowed in R v Davies (1996) 187 LSJS 467; 88 A Crim R 226. In future, a sentence of the order originally imposed by the sentencing judge would not be regarded by me as inappropriate.”
I treat Mr McLachlan’s sentence as unaffected by any increase in sentences for substantial frauds, because his offences came before the decision in Cavanagh.
Apart from the cases just referred to, we were referred to a schedule of sentences provided by Mr Boylan QC, counsel for the prosecution, to the sentencing Judge, and to a further schedule provided by Mr Braithwaite to this Court. I agree that the sentence imposed in this case is heavier than almost all of those referred to in the schedule provided by Mr Braithwaite. Each schedule included some cases involving the offence for which Mr McLachlan was convicted. I accept, of course, that as far as possible there should be consistency from State to State in the approach to sentencing for offences under Commonwealth law or under laws that are part of an Australia wide cooperative scheme.
Nevertheless, the fact remains that in cases involving dishonest schemes of the general type in question here, the courts are dealing with a wide range of conduct. It ranges from a failure to provide appropriate documentation, such as a prospectus, through to dishonest misappropriation. This is an area in which it is difficult to compare one case with another. I accept that the penalty imposed on Mr McLachlan is at the upper end of the range. I also agree with Mr Braithwaite that the sentence imposed is a heavier than the sentence imposed in the cases in his schedule. But I remain of the view that the three South Australian cases to which I referred indicate an approach to offending of this general kind which is consistent with the approach taken by the Judge in this case. As well, some of the sentences imposed in the cases referred to by Mr Braithwaite appear to me to be decidedly low. A sentence which is regarded by a sentencing judge as unduly low cannot bind the exercise of the sentencing discretion by that judge. It is for that judge to impose what the judge considers to be an appropriate sentence, and then for this Court on appeal to consider whether the sentence is erroneous.
I am not persuaded that the cases to which Mr Braithwaite refers disclose an approach to sentencing that should constrain this Court in considering the appeal. And, for what it is worth, although I regard some of the sentences in cases involving s 232(6) and s 1317FA(1) as somewhat low, I do not consider that when all the circumstances are taken into account, they lead to a conclusion that the sentence imposed by the Judge is manifestly excessive.
Conclusion
For all those reasons I would dismiss the appeal.
PERRY J I would dismiss the appeal. I agree with the reasons published by Doyle CJ. I have nothing to add.
WHITE J I have read the reasons of the Chief Justice. But for one factor, I agree with those reasons, and would otherwise agree that the appeal should be dismissed.
That factor is the circumstance that the offences for which the appellant was sentenced were committed whilst he was implementing another scheme involving dishonesty, to which his father, who was also the Managing Director of Thompson Brindal Ltd, was a party.
I adopt the statement of the facts contained in the reasons of the Chief Justice.
The appellant was born on 27 July 1967. He commenced employment with Thompson Brindal on 8 May 1989, shortly before his 22^nd birthday. Apart from a period of about six months, during which the appellant had been engaged in door-to-door selling, this was his first significant employment. Between the ages of 18 and 21 the appellant had been extensively involved in the sport of rowing culminating in his participation in the Seoul Olympics in 1988. When he first joined Thompson Brindal, the appellant performed back office work but after a time became a client advisor. His status at Thompson Brindal at all times was that of an employee.
In about December 1992, conduct of Mr Mennie, an employee of Thompson Brindal, which caused substantial losses to clients of RetireInvest, was discovered. This was an embarrassing position for Thompson Brindal.
That discovery led to a meeting at the office of Thompson Brindal on 13 December 1992 at which the appellant’s father, Mr Laming from RetireInvest and the appellant were present. It seems that there may also have been others from Thompson Brindal present but that is unclear.
The appellant was, of course, junior to his father, and appears also to have been junior to Mr Laming. The sentencing Judge described the appellant as being, at that time, “still young and comparatively inexperienced”. At that meeting, Mr Laming was assured by the appellant’s father that Thompson Brindal was “on top” of the problem and would trade their way out of it within three to six months. He was also told that the appellant, then aged 25, would be taking over the trading option service for RetireInvest clients. It was agreed that the appellant would engage in option trading on behalf of clients of RetireInvest with a view to recouping the losses incurred by Mr Mennie. It was also agreed that the clients of RetireInvest would not be told of the losses, nor the attempts being made to retrieve the position.

It was submitted by the appellant that what was devised at that meeting was a cover-up, with neither the police, nor the regulatory authorities, nor the RetireInvest clients to be informed as to what had occurred. It was submitted that the basic elements of the cover-up were proposed by Mr Laming and the appellant’s father. The respondent also submitted that the action taken, as arranged at that meeting, was a “cover-up”. The RetireInvest clients were not informed, whether by Thompson Brindal or by RetireInvest, of the losses which had been incurred, or of the attempts which would be made to recoup those losses. The sentencing Judge accepted that Mr Laming may have misinformed them of their position by not giving them complete and accurate information about their investment portfolios within RetireInvest. The appellant was aware that RetireInvest was not informing its clients of the losses which had been incurred and of the trading being done by him on their account.
Beginning at the end of 1992 or the beginning of 1993, the appellant traded in options in the name of RetireInvest clients. The subject offending did not occur until more than three years had elapsed. The loss positions which had been incurred by Mr Mennie had still not been retrieved by the time the offending commenced in April 1996, and during the period in which the offending continued. On the contrary, the losses increased. The deception of the RetireInvest clients, which had commenced in December 1992, continued throughout this period. It is unclear whether there were, prior to September 1996, reviews from time to time by the appellant, Mr Laming and the appellant’s father of progress in retrieving the losses incurred by Mr Mennie. However, during the years between 1993 and 1996, if the RetireInvest clients asked for money, Thompson Brindal would provide it, apparently from funds held by Thompson Brindal.
In September 1996, a meeting did take place between Mr Laming, the appellant’s father and the appellant at Mr Laming’s Kent Town office to discuss the general financial position of the RetireInvest clients. This was after the appellant’s offending had commenced but it was not disclosed in the meeting. There is no suggestion that either Mr Laming or the appellant’s father were aware at that time of the offending. In the course of the meeting, both the appellant and his father made remarks to the effect that Thompson Brindal were continuing to try to retrieve the position caused by Mr Mennie’s conduct.
It was common ground that the offending occurred in the context of the cover-up of the losses caused by Mr Mennie. The respondent accepted that the appellant had taken the opportunity provided to him by the cover-up in which to commit the offences.
The sentencing Judge accepted that the offences were committed in the background circumstance of the attempt to recoup the financial losses caused as the result of Mr Mennie’s activities. He did not, however, refer otherwise to the possible significance of the involvement of the appellant’s father.
A high standard of probity is expected of those entrusted with financial decisions on behalf of others. Deception of those persons is a departure from those standards. The conduct of the appellant’s father indicated to his son that such a departure was acceptable. Furthermore, it evidenced to the appellant that such conduct could be engaged in for the purpose of personal benefit which included, at least, avoidance of damage to the reputation of Thompson Brindal.
If the high standards of probity which the law requires are to be maintained, it is important that persons in senior positions model those standards to more junior employees. In the present case, Mr McLachlan Snr was not only the Managing Director but the appellant’s father. He was in an especially influential position over the appellant. The appellant was deprived of the good example to be expected from someone in his father’s position.
The sentencing Judge does not seem to have attached any weight to this consideration as affecting the culpability of the appellant’s conduct. I consider that some account should have been made of it. One should not disregard the fact that as a young man, the appellant was permitted to think that conduct involving deception of investors for the purposes of advantaging those handling investments was acceptable.
When regard is had to this consideration, the head sentence is, in my opinion, too high. I consider that this factor also affects the non-parole period fixed by the sentencing Judge.
However, it cannot be overlooked that at the time the offending occurred, the appellant was aged 28. He was no longer an immature or inexperienced young man. Furthermore, the conduct comprising his offending did not form any part of the scheme for recoupment which had been devised in December 1992. On the contrary, it frustrated those attempts at recoupment. This suggests that the reduction in head sentence and non-parole period should not be large.
In all these circumstances, I consider that a sentence, pursuant to s 18A of the Criminal Law (Sentencing) Act 1988 of eight years would be appropriate. I would fix a non-parole period of four and a half years.
Accordingly, I would allow the appeal so as to reduce the head sentence fixed by the sentencing Judge from nine years to eight years and to reduce the non-parole period from five years to four and a half years.