R v Sage
[2009] VSCA 156
•26 June 2009
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 796 of 2007
| THE QUEEN |
| v |
| JOHN GERARD SAGE |
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JUDGES: | VINCENT, NEAVE JJA and COGHLAN AJA | ||
WHERE HELD: | MELBOURNE | ||
DATE OF HEARING: | 31 March 2009 | ||
DATE OF JUDGMENT: | 26 June 2009 | ||
MEDIUM NEUTRAL CITATION: | [2009] VSCA 156 | ||
JUDGMENT APPEALED FROM: | [2007] VCC 1066 (Judge Shelton) | ||
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Criminal law – Providing materially misleading information likely to induce the purchase of shares – Section 999 & 1041E Corporations Act2001 – Whether impermissible cross-examination by Prosecutor – Libke v R (2007) 230 CLR 559 – Real risk of jury making impermissible use of evidence – Inadequate direction given – Trial unfair in all the circumstances – Applicability of proviso in s 568(1) Crimes Act 1958 (Vic) – Appeal allowed – Retrial ordered.
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| APPEARANCES: | Counsel | Solicitors |
| For the Crown | Mr G Gilbert | Commonwealth Director of Public Prosecutions |
| For the Applicant | Mr D A Dann | James Dowsley & Associates |
VINCENT JA
I have read the draft judgment of Coghlan AJA and agree that the appeal should be allowed and a retrial ordered for the reasons given by his Honour.
NEAVE JA:
I have had the opportunity to read in draft form the reasons of Coghlan AJA. I would also grant the application for leave to appeal and allow the appeal, for the reasons given by his Honour.
COGHLAN AJA:
The applicant, John Gerard Sage, was indicted before a judge and jury in the County Court of Victoria on 5 June 2007.
He was charged with twelve counts of providing materially misleading information likely to induce the purchase of shares (contrary to s 999 Corporations Act2001) and one count of providing materially misleading information likely to induce the purchase of shares (contrary to s 1041E Corporations Act2001).
The Counts on the indictment are from 1 August 1999 to February 2002.
At the conclusion of the evidence, counsel for the applicant made a successful no case submission with respect to counts 7, 9 and 13, and after submissions amendments were made to counts 5, 6 and 11. The applicant was subsequently convicted on the remaining 10 counts. He pleaded guilty to a further count which had been severed.
The applicant was sentenced to a total effective sentence of two years and ordered to serve nine months’ imprisonment before being released on a recognisance release order to be of good behaviour for two years. He also pleaded guilty to a count which had been severed at the commencement of the trial.
The applicant, by notice dated 20 September 2007, applied for leave to appeal against those convictions.
The full statement of grounds of appeal was filed in August 2003.
The grounds of appeal are:
GROUND 1: The trial of the Applicant miscarried as a result of the impermissible cross-examination of the Applicant by the Learned Prosecutor.
GROUND 2: The Learned Trial Judge erred in directing the jury that in determining whether the statement alleged to be materially misleading was likely to induce the purchase of securities the jury could look at the whole of the conversation or document in which the statement was made.
GROUND 3: The Learned Trial Judge erred in failing to make it clear to the jury that it was the allegedly materially misleading statement that had to be likely to induce the purchase of securities as opposed to the rest of the statements contained in the relevant conversation or document.
GROUND 4: The Learned Trial Judge erred in failing to direct the jury that as to each count they had to be unanimous as to the particular statement that was said to be materially misleading.
GROUND 5: The guilty verdicts of the jury were unsafe and unsatisfactory.
Application was made to add a further ground by notice dated 30 March 2009. That ground became 6:
GROUND 6: The Trial miscarried in that the Learned Trial Judge in his charge to the jury failed to:
a) sufficiently summarise the evidence in the case
b) sufficiently relate the evidence to the legal issues.
The Facts
The conduct which gave rise to the ten counts which led to convictions by the jury all related to a property development in which the applicant was engaged called the Pacific Tower development.
Stated briefly, the prosecution allegation was that the applicant made claims about the success of an earlier development to encourage investment without revealing the difference in the mode of the investment or that the development company in the earlier project had failed financially.
The applicant operated a group of companies under the umbrella of the Merchant Pacific group of companies. The applicant was the sole director and secretary of Merchant Developments Pty Ltd and a number of other companies in the group.
The group of companies undertook two major developments, one in St Kilda Road, Melbourne called Aurora. The main development company was 582 St Kilda Road Pty Ltd.
The second development was the Pacific Tower in Burwood Road, Hawthorn. The main development company was Merchant Pacific Developments Pty Ltd. The applicant gave many presentations about the second development and what he said in those presentations formed the basis of counts 1, 2, 3, 4, 8 and 10.
In the other counts, 5, 6, 11 and 12, it was alleged that the applicant distributed brochures about the development.
The form of investment offered by the applicant was the opportunity to buy shares in Merchant Developments Pty Ltd, the development company of Pacific Tower. It was said to be another example of Merchant Pacific’s successful ‘co-developer program’.
In the written material, that matter was further emphasised and the St Kilda Road project was said to have produced a good return for investors.
The success of the St Kilda Road project was a major selling point to the investors.
The Hawthorn development was described as being of a similar nature to the St Kilda Road development. It was said that the investors in St Kilda Road got a good return on their investments.
The two basic misleading features alleged by the prosecution in both the verbal and written communications were that contrary to the statements made by the applicant, the nature of the investment in St Kilda Road was different from the investment in the Pacific Tower and that the development company, 582 St Kilda Road Pty Ltd, had gone into liquidation, ie at least to that extent the project had been unsuccessful.
The investors in St Kilda Road had either loaned money or purchased units. None of the investors purchased shares in 582 St Kilda Road Pty Ltd.
In December 1999, the administrator of the company, Ian Carson, estimated a shortfall of $5.5 million in 582 St Kilda Road Pty Ltd. The shortfall had arisen because costs ultimately exceeded the amount returned from sales by about that amount.
The investors in counts 1, 2, 3, 4, 8 and 10 all gave evidence at the trial. All of them said that they were told of the success of the St Kilda Road project but not told that the development company had gone into liquidation. They all said they would not have invested if they had known.
The remaining investors acted on the brochures which were provided. Those brochures, in various forms, made the claim about the success of the co-development project in St Kilda Road. They were encouraged to believe that the present investments were similar. No mention was made of the failure of 582 St Kilda Road Developments Pty Ltd.
On 2 December 2003, an administrator was appointed to Merchant Developments Pty Ltd and other companies in the group. The investors are unlikely to recover their investments.
The applicant gave evidence at his trial. He said that he regarded the St Kilda Road project as a success and that the Hawthorn project was similar and funds were distributed in similar ways. He said that separate groups of investors made money out of the St Kilda Road development.
Ground 1: The cross-examination of the applicant
This matter arose in the trial in the following way. The prosecution called the witness Rodney James Slattery, who had been the administrator of Merchant Pacific Pty Ltd and associated companies.
The prosecutor wanted to lead from Mr Slattery evidence which showed that at the time the companies went into administration, the accused had drawn large amounts by way of loans from the group of companies. It was submitted that such evidence showed that he was misleading investors when he suggested to them that any shares which they purchased (preference shares) would rank ahead of his investment (ordinary shares).
Further, it was submitted that the applicant was being disingenuous when he said that he returned to the company after the death of Mr Burnett in order to speak for and support investors. In that way it was suggested that the existence and nondisclosure of the loan account would go to his credit. It was not particularly clear what connection the loan account had with the actual counts which alleged misleading information had been supplied, apart from the alleged connection based on the nature of the shares.
It was submitted on behalf of the applicant that the material was prejudicial and went only to the character of the applicant and that there was insufficient connection with the count on the presentment, in that the ultimate liquidation of Merchant Pacific Developments Pty Ltd was irrelevant.[1]
[1]T579.
The prosecutor said in argument that she would cross-examine the applicant about the material if he were to give evidence.[2]
[2]T567 and 588.
His Honour ruled that Mr Slattery could not give evidence about the loan or loans. His Honour said:[3]
In my view, this evidence is inadmissible and I so rule.
It is necessary to focus closely on the precise wording of the indictment. The accused is not charged with making representations that creditors’ interests were placed before his. Even if he did make such representations, it is, in my view, given the wording of the indictment, irrelevant whether such representations were true or false. To admit such evidence would, in my view, only distract the jury from its task of focusing on the misrepresentations alleged.
[3]T591, lines 21-31.
Notwithstanding that ruling, the prosecutor proceeded to cross-examine the applicant in detail about the loan account.[4] The cross-examination was on the basis that he had, through the loan totalling almost $2 million, put his own interests ahead of the shareholders. It followed that if he said otherwise, this material went to his credit.
[4]T709-711.
Given the clearness of his Honour’s ruling, it was a dangerous course for the prosecutor to take without further reference to the learned trial judge.
It led to an application on behalf of the applicant for a discharge of the jury on the basis that the prosecutor had misrepresented what had been said by the applicant and the cross-examination was contrary to his Honour’s ruling.
The prosecutor sought to defend the cross-examination on the basis that the material went to the applicant’s credit. She said:[5]
So it has been put, whether or not Mr Sage said it yesterday; but it's not only admissible because of Burnett, it is admissible because his credit is in issue. He is saying that he was dealing honestly with the investors and putting their interests ahead of his own. What I'm trying to demonstrate is that he wasn't at all; he was looking after his own interests because he was taking money from the company and ensuring that he would get that money and that there was no money left if the company went into liquidation.
[5]T715, lines 6-15.
She argued that she was not in breach of the ruling and referred to what she had said earlier[6] about cross-examination of the accused.
[6]T588.
I have no doubt that there was a genuine misunderstanding about the breadth of his Honour’s ruling and that counsel for the applicant at trial did take a long time to object to the cross examination.
His Honour ruled upon the application for discharge and accepted the prosecutor’s submission that the material did go to the credit of the applicant and his credit was relevant because the prosecutor was obliged to prove the information was provided by the applicant ‘which he knew or ought reasonably to have known was materially misleading’.[7]
[7]T724.
His Honour indicated in his ruling: ‘I will be telling the jury that it is necessary for them to focus upon the misrepresentations made at the particular point in time alleged in each count on the indictment’.
His Honour said in his charge:[8]
If I could stress that you should focus closely on what is alleged in the indictment in each count, and to make the point that the case is not about Porsches or why the Pacific Tower project failed or why the investors lost their money, you must focus closely on each count and see whether each of those four elements has been established to your satisfaction beyond reasonable doubt.
[8]T937, lines 11 to 18 (inclusive).
It was argued before us on the application that the questioning by the prosecutor was impermissible and it was further argued that it was contrary to the ruling made by the learned trial judge.
The cross-examination which led to the application for the discharge was:
Mr Burnett died in October 2002; that’s right, isn’t---That’s correct.
And you sent a letter to shareholders on 5 December 2003 in which you said that he misappropriated more than $2m?---That’s correct.
You tell this jury and you said in the letter that you did everything after Mr Burnett died to try to put the Merchant Pacific group of companies back on track?---That’s correct.
The amount of money that went to Southern Ocean Developments was not $2m, was it, it was $870,000?---The amount of money that went to Southern Ocean directly from the Merchant Pacific bank accounts to Southern Ocean was the sum that you have just said, that’s correct.
Did you ever report this supposed or alleged theft to the police?---No, we didn’t.
I know that Mr Burnett has died so you might say, well, what’s the point of reporting it when he has died, but what about the other people that you say were involved, namely Mr Adamczyk’s wife, Mr Vatmanidis; you didn’t report them to the police?---No, we didn’t.
The second way you were ensuring that you would receive money ahead of the investors or co-developers in Pacific Tower was that you were taking substantial loan drawings from the Merchant Pacific company, weren’t you?
---I had a personal loan account over many, many years, that’s correct.Out of that loan drawings you were paying your home mortgage, weren’t you?---That’s correct.
Which was - it varied, but $6,000 a month for quite a period of time?---That’s correct.
You were paying your car expenses?---That’s correct.
What sort of car were you driving by the way?---A Porsche 911.
How many Porsches did you have?---We had two.
Where was your house?---Brighton.
You were paying your Amex bills?---Correct.
Your house cleaning?---Yes.
And sometimes that was hundreds of dollars, wasn’t it?---Sometimes it was hundreds of dollars.
Your personal dry-cleaning, you were paying that as well?---Yes.
Stud fees?---Yes.
You did have a horse, did you?---I think we had at least one horse.
Basically you were just paying whatever living expenses you wanted to pay by having loan drawings from the Merchant Pacific company, weren’t you?
---That’s true.And you were doing all of this at the same time as you were dealing with our nine investors, weren’t you? If you need me to change something, I will?---I had a loan account all the way through when I was dealing with the nine investors, that’s correct.
After Burnett died, you said that you were trying to get the company back on the rails but that didn’t stop you from drawing on the loan account, did it?
---No. I had a loan account all the way through the entire period, that’s correct.And in terms of what that loan account was, you had an opening balance as at 1 July 1999 of $263,000-odd; does that sound familiar? In other words, as at that time, 1 July 1999, that was how much you owed the Merchant Pacific company?---Sorry, what date, what year?
1 July 1999?---If you’ve got a document that you could show me, I would be happy to say yes to that, but sitting here I don’t know.
Would you accept this, that in between that date, 1 July 1999, up until 2 December 03 your loan account increased by $1.925m, in other words, that between 1 July 1999 until 26 December 2003 you took a total of $1.925m out of Merchant Pacific by way of loan?---If you’ve got a document to show me, I would be happy to swear to that, but it certainly doesn’t sound correct. My belief is it’s not correct.
This was discussed with Mr Slattery, wasn’t it?---The total loan account was definitely discussed with Mr Slattery, that’s correct.
The total loan balance as at 2 December 2003 was $2.188m; do you agree with that?---Yes, I think that is absolutely correct.
And that is what you discussed with Mr Slattery, isn’t it, the amount of your outstanding loan?---That’s correct.
And you told him that - well, $700,000 was in fact really wages that were owed to you so you couldn’t really say that it was $2.2m that you were owed?---That was the position because it was over a ten-year period; there was a ten-year period of not taking wages, that’s correct.
Mr Sage, just so you have a document, could you have a look at this, please. Do you recognise that as being a part of the Merchant Pacific Pty Ltd RATA report as to affairs that you provided Mr Slattery?---Yes, I do.
And, in particular, that part of the RATA which related to your loan drawings?---Yes.
Just going back on the figures that you were unsure of, do you see there that on 1 July 1999 that the balance as at that date was about $263,127?---That’s correct.
Then we finally get to the balance as at 2 December 03 and that is $2,187,990?
---That’s correct.I tender that.
The applicant did not give evidence about the letter referred to at the commencement of the passage and the passage ‘You tell this jury’ can only mean that the applicant was being invited to adopt as his position in front of the jury that ‘You did everything … to try and put the Merchant Pacific Group of companies back on track’. What followed was an attack upon the applicant on the basis that his loan account expenditure was inconsistent with looking after the shareholders and he therefore could not have had that motive and his credit was thereby impeached.
That argument suffered from two major difficulties. First, the applicant had not said in evidence-in-chief that he had taken over the management of the Pacific Tower project for that purpose and to that extent the so-called credit attack was artificial, having, as it were, been set up merely for the purposes of it being ‘knocked down’.
Second, since the use of the loan account was for a period much greater than the period after the death of Mr Burnett in October 2002, the allegations were to a large extent separated from the ‘credit’ attack. In truth, the attack was on the character of the applicant. It must have followed that he was a person who was less than honest in his dealings with the investors because of the loan account, ie he actually favoured himself above the investors in his dealings (when he was not entitled to do so). To say that such evidence goes only to his credit, because he has represented his position as being to help the shareholders, is to entirely understate the thrust of the attack. If, in relation to the loan account, the applicant acted with authority, it could not go to his credit either. There was no necessary juxtaposition between the loan account on the one hand and the interests of the shareholders after the death of Mr Burnett on the other. If it related to him getting ahead of the preference shareholders by way of loan, it is an allegation of dishonesty.
The additional matter of concern relating to the cross-examination was that it covered not just the period when the applicant had returned to manage the Pacific Tower project but included a period which would cover the whole of the time covered by the presentment. It implied some misconduct, although in part retrospective, through the taking of these loans going back to the time of investment. That was well outside the period alleged to give rise to the issue of the applicant’s credit. It also attributed a dishonest motive to the applicant when he encouraged investment. It does seem contrary to his Honour’s ruling.
Although the prosecutor took the view that this allegation did not show the commission of another offence, it was an additional particular of the dishonesty in dealing with investors, i.e. deliberate concealment of his loan account.
Evidence of the loans to the applicant was irrelevant to the issues in this trial and thus not admissible.
I am satisfied that there was real risk that the jury might have regarded his taking of the loans as showing that he had a tendency to behave dishonestly with the funds of the investors.
It perhaps is a matter which could have been cured by a detailed and appropriate warning. No warning other than the brief comment referred to in [43] was given.
In the circumstances, the trial was unfair and I would order a retrial.
Grounds 2 and 3 were not argued before us.
Ground 4, although the subject of written submissions, was not pressed and I do not think it had merit.
Ground 5: Unsafe and unsatisfactory.
The argument was directed towards Count 5, the count involving the witness, Mr Andrew Portelli. The question arose as to what, if any, brochures Mr Portelli had seen prior to investment.
It was argued on behalf of the applicant that there was not sufficient evidence to say that Mr Portelli had seen the brochures before investment.
I am satisfied that when his evidence is viewed as a whole, including his evidence in re-examination, there was sufficient evidence for it to be open for a jury to be satisfied that he had seen the brochures before investment and acted on the material in it.
Ground 6: In view of the attitude I have taken to Ground 1, it is not strictly necessary to describe this ground. It is true that his Honour did not summarise the evidence in the case in any detail. No exception was taken to the course adopted. I would have regarded the charge as sufficient in all the circumstances, particularly having regard to the fact that the jury were supplied with a copy of the transcript.
It was argued on behalf of the prosecution that the proviso[9] should be applied. Although this was a relatively strong crown case it could not be said that no substantial miscarriage had been caused to the applicant.[10]
[9]See s 568(1) Crimes Act 1958 (Vic).
[10]See Libke v R (2007) 230 CLR 559.
Finally, counsel for the applicant submitted that since, at the time of the hearing of the appeal, the applicant had served the whole of the custodial portion of his sentence and most of the balance, it would not be appropriate for the court to order a retrial. As I have already observed, this was a relatively strong case and it would not be appropriate to direct the entry of a verdict of acquittal. The question of whether or not there should be a retrial is a matter for the Commonwealth Director of Public Prosecutions.
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