R v Young
[2021] QCA 131
•15 June 2021
SUPREME COURT OF QUEENSLAND
CITATION:
R v Young [2021] QCA 131
PARTIES:
R
v
YOUNG, Andrew Eric
(appellant/applicant)FILE NO/S:
CA No 26 of 2020
CA No 42 of 2020
DC No 1503 of 2014DIVISION:
Court of Appeal
PROCEEDING:
Appeal against Conviction & Sentence
ORIGINATING COURT:
District Court at Brisbane – Date of Conviction: 10 January 2020; Date of Sentence: 7 February 2020 (Devereaux SC DCJ)
DELIVERED ON:
15 June 2021
DELIVERED AT:
Brisbane
HEARING DATE:
20-21 August 2020
JUDGES:
Fraser and Mullins JJA and North J
ORDERS:
1. Appeal against conviction is allowed.
2. Convictions on all counts are set aside.
3. A new trial is ordered.
CATCHWORDS:
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of fraud with a circumstance of aggravation – where a corporate restructure split multiple new and existing companies into two groups: Orchard Group and Corporate Group – where before the restructure a company EDIS in the Corporate Group operated the spare parts business for the appliances sold by the Orchard Group – where as part of the restructure the business of importing and sale of appliances under the Kleenmaid brand was transferred to EDIS – where the appellant was at all relevant times a director of each of the companies in the Orchard Group, but was not a director or the secretary of any of the companies of the Corporate Group at the time of the restructure – where EDIS by its director Mr Armstrong made a loan application to its bank to assist in the takeover of the appliance business without disclosing the financial information of the Orchard Group – where the appellant had no contact with the bank in respect of the loan application – where the appellant refused to disclose financial statements of the Orchard Group to the bank and instructed Mr Armstrong to advise the bank that they would not be disclosed – where that was conveyed by Mr Armstrong to the bank – where EDIS did not disclose during the loan application that the deposits paid by customers for the goods sold by EDIS would be paid to Order House, which was a company in the Orchard Group, and held by Order House until delivery of the appliances was required – where that arrangement with Order House made the financial statements of the Orchard Group relevant to EDIS’ loan application – where the appellant knew and approved of the course taken by Mr Armstrong in respect of EDIS’ loan application – whether the appellant counselled or procured Mr Armstrong to commit the offence of fraud – whether the verdict of guilty was unreasonable or unsupported by the evidence
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of 17 counts of insolvent trading concerning debts incurred by EDIS between 3 July 2008 and 8 April 2009 (the relevant period) – where EDIS was insolvent during the relevant period – where the appellant ceased to be a director of EDIS more than a year prior to the relevant period – where the appellant was engaged by EDIS as a contractor – where there was evidence the appellant supervised, directed and instructed employees of EDIS, managed the cash flow, prioritised payments to creditors and negotiated with suppliers during the relevant period – whether the appellant was a de facto director of EDIS – where proof that the appellant was a de facto director excluded that he was acting as an “officer” (other than as a de facto director) as defined in s 9 of the Corporations Act 2001 (Cth) as an alternative hypothesis
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of 17 counts of insolvent trading concerning debts incurred by EDIS during the relevant period – where EDIS was insolvent during the relevant period – where many EDIS creditors were paid by Orchard KM which was in the Orchard Group – where the Kleenmaid business was “cash starved” during the relevant period and the appellant was closely involved in managing the cash flow – whether the failure of the appellant to stop EDIS incurring debts when he suspected EDIS was insolvent was dishonest
CRIMINAL LAW – APPEAL AND NEW TRIAL – VERDICT UNREASONABLE OR INSUPPORTABLE HAVING REGARD TO EVIDENCE – where the appellant was convicted of fraud with a circumstance of aggravation concerning the transfer of funds from the company Orchard KM to England & Young Holdings, a company associated with the appellant and his family and a former business partner and his family – where the funds were transferred two days prior to Orchard KM being placed in voluntary administration – where the transfer was done on the appellant’s instruction – where the appellant was the sole shareholder of England & Young Holdings – whether the prosecution could exclude as an alternative hypothesis to dishonesty that the appellant had an honest belief that England & Young Holdings as a secured creditor was legally entitled to the funds transferred on the basis of Orchard KM’s liability under a facility agreement in favour of England & Young Holdings – whether it was open to the jury to be satisfied that the funds transfer was dishonest
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – where the appellant was convicted after trial before a jury of one count of fraud with a circumstance of aggravation – where the self-represented appellant cross-examined Mr Armstrong who was a prosecution witness and asked whether the appellant had procured or counselled Mr Armstrong not to disclose the full nature of the relationship between EDIS and the Orchard Group to the bank – whether the trial judge erred in directing the jury that the questions were “of limited use” – whether the direction was procedurally unfair
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – OTHER CASES – where the appellant was convicted after trial before a jury of one count of fraud with a circumstance of aggravation – where there was evidence of conduct of the appellant occurring in Queensland relating to the acts and omissions constituting the offence – where the trial judge ruled that no jurisdictional question arose and declined to direct the jury that the offence had to have been committed in Queensland – whether the trial judge erred in refusing to direct the jury to consider the question of jurisdiction
CRIMINAL LAW – EVIDENCE – OPINION EVIDENCE – EXPERT OPINION – where the appellant was convicted of 17 counts of insolvent trading – where expert witnesses testified that EDIS was insolvent in March 2008 and March 2009 – where this evidence was inadmissible – whether the error in admitting inadmissible expert opinion amounted to a miscarriage of justice – whether the proviso should be applied on the basis there was no substantial miscarriage of justice
CRIMINAL LAW – APPEAL AND NEW TRIAL – PARTICULAR GROUNDS OF APPEAL – MISDIRECTION AND NON-DIRECTION – OTHER CASES – where the appellant was convicted after trial before a jury of 17 counts of insolvent trading – where the trial judge gave directions in relation to a list of circumstances that if satisfied would help the jury conclude that the appellant suspected EDIS was insolvent – where the trial judge in summing up dealt with evidence relating to the incurring of each debt that was subject of an insolvent trading count – whether the trial judge erred in directing that any one circumstance would, if satisfied, help the jury conclude that the appellant had a suspicion of insolvency
CRIMINAL LAW – PROCEDURE – FITNESS TO PLEAD OR BE TRIED – DETERMINATION OF ISSUES – where the appellant was convicted after trial before a jury of two counts of fraud with a circumstance of aggravation and 17 counts of insolvent trading – where the appellant became self-represented mid-trial when he withdrew instructions to his solicitors and those solicitors and the counsel they briefed were given leave to withdraw – where the appellant suffered episodes of transient global amnesia and experienced a deficit in auditory verbal memory – where a psychiatrist and a psychologist expressed their opinion that the appellant was unfit to be tried, but another psychiatrist considered that the appellant was fit to be tried – where the Mental Health Court determined that the appellant was fit to be tried in relation to State charges – where the appellant made an application to invoke the process under s 645 of the Criminal Code (Qld) where the jury would be required to consider whether the appellant was of sound mind – where the trial judge declined to put the issue to the jury – whether there was a real issue about the fitness of the appellant to be tried – whether the trial judge should have required the jury to consider and determine whether the appellant was fit to be tried
Corporations Act 2001 (Cth), s 9, s 95A, s 588G
Crimes Act 1914 (Cth), s 20B
Criminal Code (Qld), s 613, s 645, s 668E
Mental Health Act 2016 (Qld), s 159, s 616Eastman v The Queen (2000) 203 CLR 1; [2000] HCA 29, cited
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, cited
Kalbasi v Western Australia (2018) 264 CLR 62; [2018] HCA 7, cited
Kesavarajah v The Queen (1994) 181 CLR 230; [1994] HCA 41, considered
Libke v The Queen (2007) 230 CLR 559; [2007] HCA 30, cited
M v The Queen (1994) 181 CLR 487; [1994] HCA 63, cited
Peters v The Queen (1998) 192 CLR 493; [1998] HCA 7, cited
R v Dillon; Ex parte Attorney-General [2016] 1 Qd R 56; [2015] QCA 155, cited
R v Khallouf [1981] VR 360; [1981] VicRp 38, cited
R v Ogawa [2011] 2 Qd R 350; [2009] QCA 307, considered
R v Presser [1958] VR 45; [1958] VicRp 9, considered
R v Tier (2001) 121 A Crim R 509; [2001] NSWCCA 53, cited
Sandell v Porter (1966) 115 CLR 666; [1966] HCA 28, cited
Young v Director of Public Prosecutions (Qld)[2019] QCA 247, consideredCOUNSEL:
S C Holt QC for the appellant/applicant
L K Crowley QC, with P Kinchina, for the respondentSOLICITORS:
Anderson Legal for the appellant/applicant
Director of Public Prosecutions (Commonwealth) for the respondent
FRASER JA: I agree with Mullins JA’s reasons and the orders proposed by her Honour.
MULLINS JA: The appellant was convicted after trial in the District Court before a jury of two counts of fraud with a circumstance of aggravation (counts 1 and 20) and 17 counts of insolvent trading (counts 2-17 and 19). On count 1, he was sentenced to imprisonment for a period of eight years. On count 20, he was sentenced to imprisonment for one year to be served cumulatively with the sentence for count 1. The parole eligibility date was fixed at 9 January 2024 and a declaration was made in respect of 28 days of pre-sentence custody served between 10 January and 6 February 2020.
Counts 2-17 and 19 are Commonwealth offences under s 588G(3) of the Corporations Act 2001 (Cth). The imprisonment for the Commonwealth offences was ordered to commence on 9 January 2024. The appellant was sentenced to imprisonment for a period of two years for each of counts 2 and 3, imprisonment for a period of 12 months for each of counts 4-11, 16, 17 and 19 and imprisonment for a period of three months for each of counts 12-15. It was ordered that the sentences of 12 months’ imprisonment be served concurrently with each other and the sentences on counts 12-15, but cumulatively on the sentence for each of counts 2 and 3, and the sentences of three months’ imprisonment be served concurrently with each other and with the sentences on counts 4-11, 16, 17 and 19, but cumulatively on the sentence for each of counts 2 and 3. A recognisance release order was made in respect of the period of imprisonment for the Commonwealth offences in terms that the appellant was to be released after serving one year of the three year period, upon giving security by recognisance in the sum of $500, conditioned on his being of good behaviour for a period of two years.
The appellant appeals his convictions and applies for leave to appeal against his sentence. For the purpose of ground 6 of his appeal against conviction, the appellant applies for leave to adduce evidence in the form of his affidavit affirmed on 25 June 2020 and the affidavit of his brother Mr Bradley Young affirmed on 25 June 2020.
The appellant’s trial was conducted as an etrial. Most of the documents that were tendered had a document identification (ID) number that was an alphanumeric combination. A sequential exhibit list was also maintained, but the trial judge, the parties and even witnesses usually referred to the documents by the alphanumeric ID. For consistency with the trial record, I will therefore use the document ID rather than the sequential exhibit number in referring to exhibits with a document ID.
Grounds of appeal
There are eight grounds of appeal:
Ground 1:The verdicts on each count are unreasonable or cannot be supported by the evidence.
Ground 2: The learned trial judge erred in directing the jury as to count 1.
Ground 3:The learned trial judge erred in failing to direct the jury as to the need for the offence in count 1 to have been committed at Maroochydore in the State of Queensland.
Ground 4:The learned trial judge erred in directing the jury as to counts 2 – 17 and 19.
Ground 5:The learned trial judge erred in not leaving s 645 of the Criminal Code (Qld) for the jury to consider.
Ground 6:The appellant suffered a miscarriage of justice by the continuation of the trial following the appellant becoming self-represented.
Ground 7:The appellant was denied a fair trial as a result of the learned trial judge refusing to allow prosecution witnesses to be recalled for further cross-examination by the appellant.
Ground 8:The appellant suffered a miscarriage of justice as a result of rulings made by the learned trial judge in relation to the appellant's closing address to the jury.
Whilst the decision on the appeal was reserved and before the court had reached a conclusion in respect of the unreasonable verdicts ground, the court concluded that the appellant must succeed on ground 5 which meant that the appeal had to be allowed. As a result of this being indicated to the parties, the appellant was released on bail on 10 December 2020. In view of the outcome of the appeal, it is unnecessary to deal with grounds 6, 7 and 8 of the appeal against conviction and therefore the applications for leave to adduce evidence. It is also unnecessary to deal with the sentence application.
The conclusion that I have reached on ground 1 which is set out below is that the appellant would not have succeeded on the appeal on that ground in respect of any of the counts. That has the consequence that there should be a new trial of counts 1-17, 19 and 20. I have considered grounds 2, 3 and 4 in case the issues raised by those grounds arise on any new trial.
Background
Apart from count 20 which was a charge on the indictment against the appellant alone, the appellant had been charged jointly with his brother Mr Bradley Young and Mr Gary Armstrong. Mr Armstrong pleaded guilty to counts 1, 2 and 3 and was a witness in the trial against the appellant. Mr Bradley Young’s trial preceded the appellant’s trial and he was found guilty of counts 1-17 and 19.
The charges arose out of the corporate restructure of the Kleenmaid business. The following summary is taken generally from the admissions made by the appellant pursuant to s 644 of the Criminal Code (Qld) (the Code).
The appellant founded the Kleenmaid business in 1980. Initially it involved distribution of spare parts for appliances (spare parts business) and traded through Orchard KM Pty Ltd (Orchard KM). The business gradually expanded. In 1985, the business commenced importing appliances for sale to general retailers (appliance business). In 1996, the business began operating company owned stores under the Kleenmaid brand. In 2001, the business began opening franchised stores under the Kleenmaid brand. The spare parts business was sold by Orchard KM to EDIS Service Logistics Pty Ltd (EDIS) in 2001. Prior to 2007, the appellant suffered a heart condition requiring a triple bypass and, by 2007, he wanted to reduce his involvement in the business.
Prior to 2007, the main trading entity of the Kleenmaid business was the Orchard Unit Trust. Kleenmaid Holdings Pty Ltd (Kleenmaid Holdings) held 100 per cent of the 20 units in the Orchard Unit Trust. Orchard KM was the trustee of the Orchard Unit Trust and in that capacity operated the appliances business, provided warranty to customers and provided exclusive rights to EDIS to supply Kleenmaid spare parts. From 2005 Kleenmaid Retail Pty Ltd (Kleenmaid Retail) had operational control of Kleenmaid non-franchised stores and Orchard KM (as trustee for the Orchard Unit Trust) was 100 per cent shareholder in Kleenmaid Retail. Kleenmaid Customer Solutions Pty Ltd (KCS) was established in 2005 as an after sales service for in-warranty products and out-of-warranty products. Initially, Orchard KM owned 100 per cent of the shares in KCS, but in May 2006 Orchard KM sold its shares in KCS to EDIS.
The restructure of the Kleenmaid business was undertaken gradually in 2007.
The restructure involved nine new companies with an additional company, My Kleenmaid Rewards Pty Ltd (Rewards) being incorporated later in 2009. The restructure involved a split of the existing and new companies into two groups: a group with Kleenmaid Holdings as the head company (Orchard Group) and a group with a new company Kleenmaid Corporate Pty Ltd (Kleenmaid Corporate) as the head company (Corporate Group). The core operations of the Kleenmaid business were transferred from the Orchard Group to the Corporate Group, including the operation of the appliance business from the Orchard Unit Trust to EDIS. EDIS commenced operating the appliance business on 1 December 2007.
The Orchard Group comprised Kleenmaid Holdings, as the holding company of the Orchard Group, Orchard KM as trustee of the Orchard Unit Trust, Kleenmaid Retail which operated five company-owned stores, Manlyvale Pty Ltd (Manlyvale), Kleenmaid Pty Ltd (Order House), KM Intellectual Reserve Pty Ltd (Intellectual Reserve) and Rewards. The latter four companies were new companies. Orchard KM was the registered owner of the Kleenmaid trademark, provided warranty to customers, provided exclusive rights to EDIS to supply Kleenmaid spare parts and continued to hold the outstanding orders for the appliance business and spare parts business after they were transferred to EDIS.
The Corporate Group comprised Kleenmaid Corporate which was the holding company of the Corporate Group and held the licence agreement for use of Kleenmaid trademarks, EDIS, KCS, Lifestyle Appliances Corporation Pty Ltd which was the franchisor of 15 Kleenmaid stores, Lifestyle Appliances Sales Pty Ltd which was responsible for franchise marketing and promoted new franchises, Kleenmaid Property Pty Ltd which leased store premises that were sublet to franchisees, Bizco Retail Pty Ltd (Bizco) which provided sales support, coaching and mentoring to franchise owners and arranged fit out of Kleenmaid stores, and Kleenmaid Appliances Pty Ltd (Kleenmaid Appliances). Apart from EDIS and KCS, the other companies in the Corporate Group were new companies.
At the commencement of the trial, a diagram of the companies in the Orchard Group and the companies in the Corporate Group (document Q00000010) was tendered.
At all relevant times the appellant was a director of each of the companies in the Orchard Group. The appellant had been a director of EDIS between 15 January 2002 and 1 June 2007, a director of KCS between 18 August 2005 and 1 June 2007 and the secretary of KCS between 18 August 2005 and 29 March 2007. He was otherwise not a director or the secretary of the other companies in the Corporate Group.
On 29 December 2008 receivers and managers were appointed to Orchard KM by GE Commercial Corporation (Australia) Pty Ltd (GE). On 22 January 2009 the receivers and managers retired as Orchard KM entered into a deed of settlement with GE (document B00206520).
On 9 April 2009 and 15 April 2009, the appellant, Mr Bradley Young and Mr Armstrong placed all companies in the Orchard Group and the Corporate Group (except for Rewards) into voluntary administration and Messrs Hughes, Greig and Lombe of Deloitte Touche Tohmatsu (Deloitte) were appointed as the voluntary administrators.
At the meeting of creditors on 25 May 2009, the voluntary administrators were appointed as the liquidators of the companies in the Orchard Group and the Corporate Group (except for Rewards).
Particulars of the counts
At the outset of the trial, the jury were provided with the prosecution’s particulars for each of the charges. In respect of count 1, the prosecution put its case against the appellant on the basis that he was either a principal offender under s 7(1)(a) of the Code or a party to the offence under s 7(1)(b), (c) or (d). (There was no case based on s 8 of the Code.) The basis of the appellant’s criminal responsibility was then particularised as follows:
“2.At all material times, the [appellant] and the other directors within the Kleenmaid Group, Bradley Young and Gary Armstrong, each knew:
a.of the precarious financial position of the Orchard Group;
b.the only way the business could continue operating was to obtain a cash injection from a financial institution; and
c.the only way the business could obtain such finance was by applying for funding through an applicant entity that was not encumbered by the substantial debts of the Orchard Group, so that such debts would not need to be disclosed.
3.Consequently, the [appellant] knew, approved of, and agreed with the other directors Bradley Young and Gary Armstrong that:
a.Gary Armstrong would make a finance application to Westpac to obtain funds;
b.the purported purpose of the funding would be represented as being to enable EDIS Service Logistics Pty Ltd (EDIS) (which was part of the Corporate Group) to acquire the Kleenmaid appliances business from the Orchard KM Pty Ltd (Orchard KM) (which was part of the Orchard Group);
c.the full relationship and nature of the arrangements between the Corporate Group and the Orchard Group would not be disclosed, and instead Corporate Group would be represented as:
i. being independent of the Orchard Group; and
ii. dealing with Orchard Group on a commercial, arms-length basis.
4.Knowing these matters and that the finance would be/was sought in the dishonest circumstances set out below, the [appellant] refrained or refused to disclose to Westpac, either himself or through Gary Armstrong, the true state of affairs.”
During the trial, the respondent provided further explanation of the particulars in paragraph 3 as another way of expressing paragraph 3 to which the trial judge referred in the summing up:
“… that before Gary Armstrong applied for the finance, the [appellant] was present at meetings with Bradley Young and Gary Armstrong where Bradley Young proposed that (a) EDIS be used to apply for finance and (b) the Orchard financials should not be handed over and the [appellant] agreed or approved or supported that plan… .”
The benefit gained as a result of the application made to Westpac by EDIS which was approved by the bank was particularised as the Westpac Business Finance Facilities totalling $13m for EDIS for specific approved purposes, including the purchase of display stock and working capital requirements for stock ($3m), working capital ($1.5m), to fund the EDIS appliance division ($7m) and to assist with importing of appliances ($1.5m).
There were admissions as follows. In October and November 2007 Westpac approved finance to EDIS in the sum of $7m by way of a commercial bill facility, $3m by way of overdraft, a further $1.5m by way of overdraft, invoice finance of $1.5m and a temporary overdraft of $1.5m. The commercial bill of $7m was made available on 13 November 2007 and EDIS received into its Westpac account the amount of $6,947,647. A further $2,888,553 was advanced to EDIS’ Westpac account on 13 November 2017 from the overdraft amount of $3m. A further $1.5m from the temporary overdraft facility was also made available to EDIS through its Westpac account on 30 November 2007. A total amount of $11,336,200 was received by EDIS from Westpac in November 2007 of which $10,310,000 was transferred to Orchard KM between 13 November and 14 December 2007. Between 13 and 22 November 2007 the sum of $7.7m was paid out of the Orchard KM account to which the EDIS funds had been transferred and all the payments related to debts that had been incurred by Orchard and some payments were made in relation to invoices dating back to June 2006.
The circumstances of dishonesty were particularised in paragraph 7 as:
“The benefit was dishonestly gained because the finance was sought and obtained in the following circumstances:
a.the true nature of the relationship between the Corporate Group and the Orchard Group companies was not disclosed, and Westpac was led to believe that:
i.the Corporate Group and the Orchard Group, and in particular EDIS and Orchard KM, were separate and distinct businesses; and
ii.all transactions between the two were conducted on a commercial arms-length basis, when in fact it was one operation;
b.the serious debt position of the Orchard Group, and in particular Orchard KM, was not disclosed to Westpac;
c.the Orchard Group financials were not provided to Westpac despite being requested;
d.the circumstances of the sale of the shares in EDIS was not disclosed to Westpac, and in particular that:
i.Gary and Carol Armstrong transferred their shares in EDIS to Kleenmaid Holdings Pty Ltd (an Orchard Group company) for no, or nominal, consideration;
ii.Kleenmaid Holdings Pty Ltd then transferred the shares in EDIS to Kleenmaid Corporate Pty Ltd (the holding company for the Corporate Group) for $9.88M;
iii.and the method by which the above transfer was to be accounted for in company accounts was by recording a $9.88M loan from Kleenmaid Holdings Pty Ltd to Kleenmaid Corporate Pty Ltd;
e.the financials/figures provided to Westpac represented that the Corporate Group companies had retained earnings of $12M, but failed to disclose a loan of approximately $9.88M owed by the Corporate Group to Orchard Group (arising out of the sale of shares from Kleenmaid Holdings Pty Ltd to Kleenmaid Corporate Pty Ltd), which reduced retained earnings to $2M;
f.Westpac were led to believe that title and possession of the existing purchased inventory would be transferred to EDIS upon acquisition of the Kleenmaid appliances business, and it was not disclosed that:
i.the Orchard Group would instead retain the inventory, and there would be no such transfer of these assets to EDIS; and
ii.EDIS would only receive inventory gradually on a transitional basis, as and when delivery of orders was required;
g.the following ‘Order House’ arrangements were not disclosed to Westpac:
i.customer deposits for sales made by EDIS would be received by Kleenmaid Pty Ltd (Order House);
ii.the funds received by Order House would be used for other purposes, including for payment of Orchard Group debts, rather than being retained and held in trust; and
iii.EDIS was only able to receive payment of the customer deposits held by Order House after issuing an invoice to Order House at the time when the order was to be delivered, and the invoice was on terms that payment by Order House was required within 30 days from the end of the month.
h.the moneys borrowed from Westpac were not used for the purposes for which they were sought and approved, but rather were used to pay debts of the Orchard Group.”
In relation to counts 2-17 and 19, the basis of the appellant’s criminal responsibility was particularised as a principal offender on the basis that he was a de facto director, as at all times relevant to those counts, he acted in the position of a director by performing functions for the Kleenmaid Group including EDIS that included supervising, directing and instructing staff and employees, controlling the finances of the business and dealing and negotiating with suppliers and creditors. (The respondent referred to the aggregation of the Orchard Group and the Corporate Group as the Kleenmaid Group and I will use the description “Kleenmaid Group” for the same purpose.) Lengthy particulars were then provided of the circumstances on which the prosecution relied to prove the appellant suspected that EDIS was insolvent at the dates of each of the transactions. The creditor whose debts were the subject of counts 2 and 3 was Westpac. CEO Global Logistics Pty Ltd was the creditor whose debts were the subject of counts 4-15. Mitchell & Partners (Qld) Pty Limited was the creditor whose debts were the subject of counts 16, 17 and 19.
In respect of each of the insolvent trading offences, the prosecution had to prove that the appellant failed to prevent EDIS incurring the debt and that failure was dishonest. It was particularised that it was dishonest, because he was aware of the Kleenmaid Group’s parlous financial state and he could not have had any realistic expectation that the Kleenmaid Group would be able to repay any further debts incurred by the Group, but failed to direct staff not to incur debts and failed to cease incurring debts on behalf of the Kleenmaid Group.
The prosecution’s case against the appellant for the count 20 fraud was based on his being a principal offender. The benefit gained was particularised as the appellant directing Kleenmaid employees to transfer $330,000 from the bank account of Orchard KM to England & Young Holdings Pty Ltd which was effected on 7 April 2009. The particulars of why the benefit was gained dishonestly were the circumstances that the appellant knew the parlous financial state of the Kleenmaid Group and there was no more ability for it to keep trading, the appellant was contemplating the appointment of administrators, the appellant knew there were limited funds remaining in all bank accounts associated with the Kleenmaid Group and the only funds left in EDIS were earmarked to pay the staff wages, the transfer advantaged England & Young Holdings over other secured creditors, and the appellant and his wife and the appellant’s former business partner, Mr England, all stood to benefit financially from the transfer.
Ground 1: Unreasonable verdict – count 1
The approach the court must take where the ground of appeal is that the verdict was unreasonable or cannot be supported by the evidence is to ask the question whether the court thinks that upon the whole of the evidence it was open to the jury to be satisfied beyond reasonable doubt that the appellant was guilty: M v The Queen (1994) 181 CLR 487, 493. It is also relevant to have regard to the observations in R v Young [2020] QCA 3 (Young) at [69] that “a challenge to a conviction upon this ground requires more than the identification of evidence which was exculpatory” and, consistent with what was said by Hayne J in Libke v The Queen (2007) 230 CLR 559 at [113], that the question for the appellate court is whether it was open to the jury to be satisfied of guilt beyond reasonable doubt which is whether the jury must, as distinct from might, have entertained a doubt about the appellant’s guilt.
It was common ground at the trial in relation to count 1 that the appellant had no contact at all with Westpac in respect of the application for the $13m loan that was made to EDIS. Although the prosecution case for count 1 was left to the jury on the basis the appellant either did the relevant acts as principal or was liable pursuant to any of paragraphs (b), (c) or (d) of s 7(1) of the Code, there were two aspects of the particulars which the prosecution focused on in the trial as to the conduct of the appellant to prove him guilty of count 1 pursuant to s 7(1)(d) of the Code. These were, first, that the appellant knew, approved of and agreed with Mr Bradley Young and Mr Armstrong for EDIS to apply to Westpac for the loan for a purpose known not to be its true purpose and to withhold deliberately information about the full relationship and nature of the arrangements between the Corporate Group and the Orchard Group and, second, the appellant “refrained or refused” to disclose to Westpac “the true state of affairs”. On the basis that it was Mr Armstrong who conveyed to Westpac that the Orchard Group financials would not be provided, the prosecution case was that the appellant’s conduct amounted to counselling or procuring the commission of the offence by Mr Armstrong.
In order to deal with the issue of whether the verdict in respect of count 1 was unreasonable or unsupported by the evidence, it is necessary to set out in some detail aspects of the relevant evidence.
Mr Drake is a tax agent and accountant who did some contract work for Kleenmaid in 1999, took over the role of the financial controller in about 2001 for about six months and then was a finance consultant to Kleenmaid leading up to the restructure. His evidence-in-chief was as follows. Mr Drake prepared for Mr Armstrong on 13 April 2007 a preliminary restructure proposal diagram version 1 (document B00394503A). Mr Drake then prepared an extensive briefing document in May 2007 (document B00394512) that was a proposal to update and rename Kleenmaid Group entities. The initial proposal was that a customer of a company or franchised store would pay a deposit for goods that was received by Order House. Order House would hold onto the deposit and use the funds as it needed to before delivery of the product, such as paying commissions to franchisees. When the goods were due for delivery, the order would be forwarded to EDIS which was the company that made the sale and delivered the product and EDIS would raise an invoice to Order House that would then make payment of the deposit to EDIS.
The briefing document set out proposed changes to existing entities. In relation to stock, it noted that stock would remain in Orchard, although it would diminish in value as items were delivered, and that stock would be used by EDIS to satisfy orders it had the responsibility to deliver. It stated:
“Each month Orchard will invoice EDIS for stock used in this manner and this will result in a decreasing value of stock in the books of Orchard. The main warehouse stock should be sold within six months.”
The briefing documents proposed that product importation and wholesaling would become part of EDIS. In dealing with the impact of the restructure on EDIS in relation to stock in the same briefing document, it proposed that EDIS would set up new accounts with suppliers and import product directly and build its stock level up over time, but until that occurred EDIS would source its stock from Orchard’s existing stock holdings. It proposed that the value of the Orchard stock would not be recognised in the financial accounts of EDIS, but would be tracked in EDIS’ accounts for management purposes.
Mr Drake explained that it was his view when preparing the briefing document, if the stock were transferred from Orchard to EDIS, it would attract a significant amount of stamp duty.
Before the restructure Mr Armstrong was in charge of finance, Mr Bradley Young who had previously been the sales manager and had control of franchising had taken on the role of managing director and “was, more or less, running the show” and the appellant was trying to retire, so he had a lesser role. The appellant had the relationship with the suppliers, because that was a personal relationship he had built up over many years and he still went and visited the overseas suppliers. Those roles continued after the restructure. After the restructure, the appellant was still heavily involved with cash flow to the overseas suppliers, because of his relationship with them.
On 9 June 2007 Mr Drake forwarded to Mr Armstrong a spreadsheet he had prepared that showed Kleenmaid’s funds’ position in the future as between the existing Orchard Group and the new group based around EDIS (document B00394514). The funds’ position for the existing group showed a total shortfall of $68m. It included an estimate of the cost of the warranty on products sold prior to the restructure that was likely to be incurred over the next five years. The documents showed that $68m would need to be achieved on a sale for the goodwill of the business to cover the existing group’s liabilities.
Mr Drake did modelling for the new business in around July 2007. The information for the Orchard Group was not going to be supplied to the bank, because that was the appellant’s side of the business. It was Mr Armstrong and Mr Bradley Young who were looking after the new Corporate Group and it was their side of the business that was going to the bank. It was Mr Armstrong who told Mr Drake that they would not be showing the Orchard balance sheet to the bank.
Prior to the restructure being implemented, each of Mr Armstrong and his wife held six shares in EDIS. Mr Drake understood that they held those shares in trust “for the unit holder of the Orchard Unit Trust” which was Kleenmaid Holdings. On 30 November 2007 Mr Drake had prepared for Mr Armstrong suggested minutes of meeting (document B00394517) for the transfer of the shares held by Mr and Mrs Armstrong in EDIS to Kleenmaid Corporate, subject to the approval of Westpac as the mortgagee with the shares, with an effective date of the transfers of 1 November 2007.
Mr Drake gave the following further evidence in cross-examination. One of the things that EDIS was to do differently was to recognise revenue from orders when the goods were delivered. This was an in anticipation of a public float. Mr Stable was the project manager looking after the switch over. He prepared an overview of the changes to the accounting systems that he sent to Mr Drake on 13 August 2007 (document B00188174). This overview emphasised that EDIS would be the main operating entity, but that Order House would hold the deposit until the goods were delivered and installed and the deposit would then be transferred to EDIS. The overview noted that use would be made of inter entity loan accounts and settling up on a regular basis, as “[d]ue to the very large number of transactions between the different entities it is not practical to make payments via bank transactions all the time”.
Mr Drake had prepared forward-looking models that he provided to the accountants William Buck that were engaged by Westpac. He explained by reference to the model (document B00165753) his estimation of the time period in which orders were delivered from the date of sale. It also contained an analysis of expected cashflow from customers and expected outflows to creditors for payment of stock. In re-examination, Mr Drake was taken to the William Buck report dated 7 November 2007 (document B00580488) and the balance sheet at page 11 which was a FY08 Forecast Balance Sheet commencing November 2007 that showed the inventory in current assets of approximately $12.6m. Mr Drake confirmed that indicated acquired inventory.
Mr Drake identified two documents (documents B00487106 and B00487107) that were in his handwriting and that were probably produced in the third quarter of 2008 (which Mr Drake clarified in re-examination was a reference to the third quarter of calendar year 2008). The second of the documents shows two options in relation to the transfer of shares in EDIS from Mr and Mrs Armstrong to Kleenmaid Corporate through Kleenmaid Holdings. The value of $9.88m that was attributed to the share transaction was conceived by Mr Drake in August 2008 based on the equity of EDIS at that time on which advice was obtained from accountants PKF. Mr Drake only discussed the valuation with Mr Armstrong.
Mr Armstrong’s evidence-in-chief was as follows. The businesses operated by Orchard and EDIS were operating “fairly independently”. The spare parts business operated by EDIS was based in Sydney and Mr Jan Proos was the general manager. Mr Armstrong was the CFO for both businesses and was based at Maroochydore. There was a change in roles from about December 2005 between the appellant and Mr Bradley Young. Mr Bradley Young had been the sales and marketing manager and became the managing director. The appellant had medical issues and wanted to reduce his involvement and continued as a director of Orchard. Mr Bradley Young was active in making policy decisions and the appellant continued to look after product warranties, service and product selection. The restructure proposal came about in the first quarter of 2007. Mr Bradley Young made a presentation to the appellant and Mr Armstrong at the Maroochydore office describing his vision for the restructure. At that stage EDIS’ business had a positive cash flow, but Orchard was struggling with cash flow and profitability. The struggling position of Orchard was a matter for discussion at meetings held each couple of months attended by Mr Bradley Young, the appellant and Mr Armstrong.
When EDIS had acquired the spare parts business in 2001, Mr Armstrong had applied on behalf of EDIS to Westpac for finance for the purchase. In 2007 EDIS still had a finance facility with Westpac and Mr Armstrong was the person who dealt with the bank on behalf of EDIS.
Mr Bradley Young’s objective for the restructure was to create an entity for a “liquidity event”, either a float or a private sale within a period of two or three years. The biggest change with the restructure was that EDIS was to conduct the business of importing and selling the appliances. A lot of work was put into developing the restructure with legal advice obtained to protect the intellectual property of the business and a project team comprised of accountants and systems people planning the restructure. Mr Armstrong had numerous discussions with Mr Bradley Young about the restructure. The appellant was less involved in the development of this project, as his involvement was primarily with service and warranty. Some weeks after Mr Bradley Young had done his initial presentation about the restructure, he mentioned finance would be required as part of the plan. It was likely that the appellant was present for this discussion, but Mr Armstrong could not recall. The appellant would have been involved in some of the subsequent meetings that worked on the finance application. The proposal to the bank was drafted between Mr Bradley Young and Mr Armstrong. It was proposed that the inventory would be sold to EDIS and the bank asked to fund that purchase. (That was reflected in the email sent by Mr Armstrong to the appellant and Mr Bradley Young on 18 August 2007 (document B00195168) that attached an outline of the presentation to be made to Westpac, including the comment that strength would be added to the bank’s security position by increased inventory of $12m. Mr Bradley Young emailed Mr Armstrong and the appellant on 7 September 2017 (document B00195533) to arrange a meeting on that day to “cover off” a number of matters, including the Westpac information.)
At meetings between Mr Bradley Young, the appellant and Mr Armstrong, it was discussed that the application to the bank would be by EDIS for funding and Orchard’s information would not be required or given. That was an “instruction” from Mr Bradley Young and the appellant.
The application for finance by EDIS was made by Mr Armstrong to the banker with whom he had been dealing with at Westpac in relation to the spare parts business, Mr Dickson. The initial letter to Westpac from EDIS dated 14 September 2007 (document B00620172) (the application letter) seeking a facility in connection with the operation by EDIS to import, distribute and wholesale Kleenmaid products through retail, commercial and wholesale channels as a result of “long-term agreements with the Kleenmaid Group” was drafted by Mr Armstrong at Mr Bradley Young’s direction and signed by Mr Armstrong.
The application letter referred to the proposed change of ownership of EDIS in that Mr and Mrs Armstrong would be selling their shares to Kleenmaid Corporate which the application noted would require the approval of Westpac as mortgagee of the shares. The application letter observed that Westpac’s security position would be “strengthened by the new arrangements” and, in particular, the value of Westpac’s charge over EDIS would be “strengthened to the extent that the gross value of assets increases as a result of the new activities”. The application letter dealt with inventory funding as follows:
“With this arrangement comes an obligation to provide inventory for the operation of the business. This inventory falls into two categories:
1.Display stock for all non-franchised Kleenmaid retail stores. At present, this stock is provided by Bizco PL in all NSW stores, and by Kleenmaid in its retail stores located in all other states. The value of stock currently provided by Kleenmaid is approximately $3M.
2.Warehouse inventory, current value approximately $7M.
The licence agreement with Kleenmaid provides for a fee to be paid to Kleenmaid if it continues to provide this inventory. In the alternative, EDIS has the option of purchasing the stock. In order to eliminate the fee to Kleenmaid, EDIS intends to proceed with purchase of the stock, and requires funding to assist in that process.
I would be guided by you in selecting the appropriate facility or facilities for this purpose. The options for these facilities might include trade finance funding.”
The application letter attached a chart (document B00620173) that was described in the application letter as showing the new structure of the EDIS Group following the changes proposed by the restructure. (It should be noted that the chart was limited to the Corporate Group other than Kleenmaid Appliances and did not include or refer in any way to the Orchard Group.)
Mr Armstrong and Mr Bradley Young met with Mr Dickson on 18 September 2007. During the process of applying for the finance from Westpac, Mr Armstrong was asked on one occasion for the “financials of Orchard”. He relayed the request to both Mr Bradley Young and the appellant and both of them said “no”. Mr Armstrong conveyed to the bank that the appellant, as the director of Kleenmaid “felt that it was a private business and he didn’t need to disclose the financials of Orchard”.
Mr Armstrong had referred in his evidence to a number of years previously when EDIS was seeking funding from the bank and that the appellant “had clearly indicated that he wasn’t interested in giving financials for … anything other than Orchard’s borrowing”. When the proposal was being discussed in the appellant’s presence by Mr Bradley Young presenting to Mr Armstrong and the appellant, Mr Armstrong thought “it was repeated that [the appellant] said he wasn’t willing to provide financials for EDIS’ borrowing”. Mr Armstrong stated that “at least in my mind it was very clear that Orchard wasn’t a suitable borrower”, because of cash flow issues, and even though “the financial statements were passable”, he considered the cash flow issues could have been a source of concern for a lender.
Mr Armstrong forwarded the email which he received from Mr Dickson dated 11 October 2007 attaching the conditional letter of offer in relation to EDIS’ purchase of the appliance division of Kleenmaid to Mr Bradley Young and copied to Mr Andrew Young on 15 October 2007 (document B00733950). The appellant sent an email to Mr Armstrong on 9 November 2007 (document B00195553) that congratulated Mr Armstrong “getting the deal over the line” and inquiring “When will GB be able to begin dispersing funds?”. The reference to “GB” was to Graham Baker with whom the appellant worked “to ensure that the suppliers were paid in order of what [the appellant] thought was the priority, and so he was just looking forward to being able to sit with Graham Baker and … allocate those funds [being the proceeds of the funding from Westpac to EDIS] to the correct suppliers”.
After the restructure, Order House was set up to receive the orders and the money paid by customers. That was done at the direction of Mr Bradley Young. A lot of orders (and deposits) were received long before delivery of the goods was required. It was not necessary to hold inventory to cover all orders that were on hand, but enough inventory in the warehouse to cover those deliveries for the period that it was determined needed to be covered. EDIS knew nothing about the order until delivery was required. The funds held by Order House were made available for the operation of the business, so that Order House did not always have cash equal to the value of customer deposits. When an order was received in the Orchard Group, it was recognised as revenue immediately and, at the same time, the cost of providing the product to a customer was recognised as an expense. The customer deposits were at times around $30m. Because of the cash flow challenges that the Orchard Group had, the business relied on new orders coming into fund deliveries of products for old orders. It was a situation that was “not secure”. That issue was raised by Mr Armstrong with both Mr Bradley Young and the appellant before the restructure.
Mr Armstrong’s evidence during cross-examination was as follows. Mr Armstrong confirmed that the proposal from Mr Bradley Young for the restructure always contemplated a licence agreement between the Orchard Group and EDIS. Mr Armstrong agreed with the appellant’s statement that the appellant had never agreed with him nor approved him making an application to any bank, including Westpac, for the funding of EDIS that was required to execute its role under the licence agreement. Mr Armstrong then agreed with the proposition put by the appellant that the appellant never agreed with him nor approved his representing that EDIS would be acquiring Kleenmaid’s appliance business from Orchard. Mr Armstrong stated that he “never did put that position to the bank” and confirmed the reason that was never put was there never was an acquisition, but simply a licence agreement. Mr Armstrong also agreed with the proposition that the appellant never agreed with him, nor approved that Mr Armstrong “would not disclose the full relationship between and nature of the agreement between EDIS and Orchard, including EDIS being independent of the Orchard Group”. Mr Armstrong also agreed with the proposition put by the appellant that the appellant never agreed with him, nor approved, that Mr Armstrong would not disclose the full relationship between and nature of the agreement between EDIS and Orchard, including EDIS dealing with Orchard Group on a commercial arm’s length basis.
Mr Armstrong confirmed that the funds obtained by EDIS from Westpac were used for the purposes that were represented to Westpac. Mr Armstrong also confirmed that the appellant had never provided the financial statements of Kleenmaid Pty Ltd at any time from 2001 to 2007 whenever Westpac may have requested them, but the appellant did provide the “financials” for Kleenmaid Pty Ltd to his own bankers and to whomever else the appellant chose to do so during the same period.
Mr Armstrong’s evidence in re-examination included the following. There were discussions between Mr Armstrong and the appellant about the financial position of the Orchard Group, but primarily in relation to cash flow issues, as the appellant was directly involved in managing the cash flow. When Mr Bradley Young came up with a plan for the restructure, the proposal for finance was not considered until a couple of months later. There was no discussion about which entity would be used for the purpose of applying the finance, as the restructure was in full swing by the time funding was addressed and there was no doubt that EDIS was the vehicle that was going to be used for the liquidity event in the future to which the restructure was directed. The appellant was present with Mr Armstrong when Mr Bradley Young was presenting about EDIS being the borrower. Mr Armstrong thought it was repeated by the appellant that he was not willing to provide “financials” from the Orchard Group for EDIS’ borrowing. Mr Armstrong said that it was “understood” by Mr Bradley Young, the appellant and himself that Orchard was not a suitable borrower because its cash flow issues would have been “a source of concern” for a lender, even though the financial statements were “passable”. The only reason that the financial statements of the Orchard Group were not provided to Westpac was that the appellant had maintained his position in the meetings with Mr Armstrong and Mr Bradley Young that the Orchard Group was not the borrower and its “financials” were for his private company.
When Mr Bradley Young put the proposal for the restructure at the meeting in March 2007 at which Mr Armstrong and the appellant were present, the appellant was happy with the prospect of receiving substantial licence fees from EDIS to the Orchard Group. As far as the application to Westpac was concerned, Mr Armstrong considered that the appellant regarded it as the proposal of Mr Bradley Young. The appellant “had some interest in the result of the proposed finance arrangement, but he wasn’t involved in the detail of it … or exactly how it was to be done”. It was to be Mr Bradley Young and Mr Armstrong working on the application by EDIS to Westpac, as Mr Armstrong had the contact with the bank. It was oversight on Mr Armstrong’s part in not informing the bank that the inventory held by the Orchard Group would not be transferred immediately to EDIS, because of the legal advice received by the Kleenmaid Group that stamp duty problems would arise if that occurred. Meetings between Mr Armstrong and Mr Bradley Young or meetings together with the appellant were very informal and there were no minuted meetings.
The full nature of the relationship between EDIS and Orchard was not disclosed by Mr Armstrong to the bank, because the bank officers did not ask the relevant questions. They were aware of the licence agreement, as it enabled EDIS to sell appliances in place of Orchard. Mr Armstrong answered the bank’s questions to the best of his ability and accurately, but he did not give any information voluntarily. His practice in dealing with finance applications was to provide information that was requested. Mr Armstrong had no right to disclose Orchard’s financial position without the appellant’s permission.
Mr Dickson who had been the Westpac relationship manager for EDIS since 2001 gave evidence as follows. He was assisted in that role by Mr Gupta. Westpac had approved finance for Bizco in the amount of $5m by way of a commercial bill facility on 29 March 2007 in respect of Bizco’s acquisition from the Kleenmaid Group of the right to provide support service to franchised Kleenmaid Stores. In connection with that proposal, Mr Dickson was advised by Mr Armstrong that Westpac could not access the Kleenmaid financial statements.
Mr Dickson together with Mr Gupta and their supervising manager Mr Growcock attended a meeting on 18 September 2007 with Mr Armstrong and Mr Bradley Young. At this meeting Westpac sought access to the Kleenmaid financial statements and Mr Armstrong explained that Mr Andrew Young would not allow third parties to access those financial statements, but that Mr Armstrong had done his own due diligence. Mr Dickson understood that the value of Westpac’s securities would increase, as a result of EDIS’ acquiring the inventory from the Kleenmaid Group. The effect of the decisions at the meeting on 18 September 2007 were incorporated into an internal bank discussion paper addressed to Mr Growcock by Mr Dickson dated 2 October 2007 (document B00580460). On 2 October 2007 Mr Dickson had received from Mr Armstrong revised projections for the appliance division of EDIS for two years commencing November 2007 (documents B00580476 and B00580477). (The projected balance sheet for EDIS at the end of November 2007 showed inventory at $12.7m.) A further meeting attended by Mr Growcock, Mr Dickson and Mr Gupta with Mr Armstrong and Mr Bradley Young was held on 3 October 2007, as a result of which Mr Growcock sent a memo to Mr Dickson and Mr Gupta dated 4 October 2007 (document B00580459) that confirmed Mr Growcock’s approval for a conditional indicative letter of offer to be sent by the bank to EDIS. That memo set out Mr Growcock’s understanding of the funding requirement of EDIS to acquire the appliance division of Kleenmaid for approximately $13m, including the purchase of the entire warehouse stock for approximately $7m and the purchase of the remaining stores’ display stock and to cover working capital requirement stock for approximately another $3m. The letter of offer dated 10 October 2007 was sent by Mr Dickson to EDIS (document B00580489). The offer was accepted by Mr Armstrong on behalf of EDIS and dated 13 November 2007.
In cross-examination, Mr Dickson accepted that he knew the businesses were interdependent when the November 2007 funding was advanced to EDIS, but he had understood their respective businesses were conducted at arm’s length. Mr Dickson confirmed that he had “absolutely no contact with Andrew Young”.
Mr Gupta and Mr Growcock gave evidence which reflected the evidence given by Mr Dickson.
Evidence was adduced through registered liquidator Mr Hughes (who had been appointed first as an administrator of the companies in the Kleenmaid Group placed in voluntary administration and then as one of the liquidators) of a number of financial statements and analyses taken from the management accounts of the Kleenmaid Group and other Kleenmaid Group documents available during Deloitte’s administrations that were relied on by the prosecution to prove the parlous financial state of the companies in the Kleenmaid Group, particularly from March 2008. Mr Hughes’ evidence was relied on by the prosecution in relation to all counts. In summarising his evidence below, I have not attempted to confine the evidence to that which related only to count 1, as the relevant evidence was in some instances adduced as part of evidence that dealt with the trading of the Orchard Group and the Corporate Group over a period of time that was relevant to count 1 in some respects and to the other counts in other respects. For the purpose of considering whether the verdict on count 1 was unreasonable, I have had regard only to evidence that was relevant to proving that offence.
Mr Hughes expressed the opinion that all the companies in the Kleenmaid Group were insolvent from 31 March 2008. He explained that, as at that date, Orchard KM had a significant deficit and that made Order House and EDIS insolvent, as Orchard KM owed Order House a substantial amount which it could not repay and that Order House owed EDIS a substantial amount which it could not repay.
Mr Hughes showed how he reached that conclusion by reference to the financial statements and analyses. He explained that after the restructure, when a customer paid a deposit for an appliance, the funds went to Order House and funds were generally then transferred from the Order House bank account to Orchard KM as a loan. That resulted in Order House having a growing deposit liability to customers and a growing receivable from Orchard KM. By reference to the summary of balance sheet balances for each quarter for Order House (document Q00000100), the customer deposits were shown as a liability and were $2.3m as at 31 December 2007 and had increased to $17.8m as at 9 April 2009. The same document showed the intercompany loans receivable which Mr Hughes stated were receivable from Orchard KM as $7.66m as at 31 December 2007 and increased to $86.2m as at 9 April 2009. When EDIS filled the customer’s order, instead of transferring the deposit amount in cash to EDIS, the amount owed by Order House to EDIS was shown in intercompany loans payable in Order House’s balance sheet. The amount of the intercompany loans payable by Order House to EDIS as at 31 December 2007 was $4.1m and that increased to $68.2m as at 9 April 2009. As Mr Hughes stated, Order House did not have cash to pay to EDIS because it had gone to Orchard KM. Mr Hughes then undertook the exercise of removing the Orchard KM receivables from the summarised balance sheet of Order House and that resulted in a deficit in the net assets of Order House as at 9 April 2009 of $83.7m (document Q00000111). Without that adjustment, the net assets of Order House were otherwise a deficit of $16,000.
Mr Hughes produced a summarised profit and loss statement for the Corporate Group and the Orchard Group (document Q00000074) for the financial years ended 30 June 2007 and 2008 and for the period from 1 July 2008 to 31 March 2009 that showed the losses of the Orchard Group before tax were about $10m for the financial year 2007, about $26m for the financial year 2008 and about $17.5m for the period to 31 March 2009. A summary balance sheet for the Kleenmaid Group as at 30 June in each of the years 2006, 2007 and 2008 and the period ended 31 March 2009 and 9 April 2009 (document Q00000075) showed the total net assets of the Kleenmaid Group declined from break even as at 30 June 2006 to a deficiency of $82m by 9 April 2009. Mr Hughes prepared a schedule that showed related party loans from the E & Y Property Trust (of which England & Young Holdings was the trustee) to the Kleenmaid Group that amounted in total to $9.84m (document Q00000080). There were three advances: $4.407m in January 2007, $3.759m in July 2007 and $1.674m in December 2008. From October 2007 until 9 April 2009, a comparison of the closing cash balance of the Kleenmaid Group with the cumulative overdraft showed that, apart from the period between January and March 2008, the business was operating at or around the overdraft limit and that was exceeded increasingly from October 2008 (document Q00000019). The number of payment plans the Kleenmaid Group negotiated and had in place with creditors increased from 5 in September 2007 to 111 in March 2009 (document Q00000024). It is not necessary to summarise all the documents produced through Mr Hughes, as they painted a similar picture of the deteriorating financial situation of the Kleenmaid Group from the end of 2007 through to 9 April 2009.
It was critical to the prosecution’s case at trial that the separation of the Orchard Group and the Corporate Group for the purpose of the loan application was artificial, as the two groups continued to operate as one business after the restructure. Mr Hughes’ evidence supported that position. Other evidence which supported it was from employed accountant Mr Pearce who confirmed that the Orchard KM bank account known as the NAB No 2 bank account continued to be the transactional bank account for the payment of suppliers of appliances who supplied EDIS after the restructure.
Mr Baker was employed as a senior financial accountant at Kleenmaid from January 2003 to February 2008. His main role was the cash flow of the business and supervising the accounts payable. During 2007 he was reporting daily by email to the appellant with attached spreadsheets on the cash flow and meeting with the appellant at least a couple of times each week. In terms of the daily updates that Mr Baker provided, there was little or no change after the restructure, as the main NAB bank accounts were used for receiving the income and paying the accounts. Priorities would be set each day for what payments would be made to ensure that suppliers would keep shipping products from overseas. There was never enough cash for all accounts to be up to date. Mr Baker identified many of the emails he sent to the appellant both before and after the Westpac funds were made available.
In cross-examination, Mr Baker confirmed that the cash flow was concerned with the cash flowing through the NAB No 2 account and that did not include any of the cash receipts from the EDIS spare parts business. It included transfers from Orchard KM to EDIS and payments made from Orchard KM directly to creditors to EDIS. Mr Baker agreed that most payments from the Orchard KM account were to the creditors of the EDIS appliance business. Mr Baker agreed that Orchard KM sold EDIS $10m worth of stock in late 2007 and EDIS paid Orchard KM $10m for that stock. Orchard KM then had to pay its suppliers for a large percentage of that stock.
Ms King worked as the systems accountant and management accountant for Kleenmaid between January 2007 and February 2008. She reported to Mr Armstrong whom she described as the finance director, but understood the appellant to be a director of the Kleenmaid business. She worked closely with Mr Baker. Ms King prepared the profit and loss report at the end of each month as a spreadsheet that would be distributed to Mr Armstrong, Mr Bradley Young and the appellant and the individual department reports would go to the managers of those departments. After the restructure, the business was operated the same as before the restructure and there was no difference in what Ms King was doing on the accounting side, but the accounting entries were different in different companies. For the period that Ms King worked for Kleenmaid, the profit and loss statement showed consistent losses over a number of months and the balance sheet report showed growing debt.
Mr Neville commenced working at Kleenmaid in 2000 as the supply manager which involved preparing purchase orders for appliances from overseas suppliers and then distributing them to the retailers. When Mr Neville became a consultant to Kleenmaid in 2006, he continued with the responsibility for the supply from the overseas manufacturers and the shipping of the appliances to Australia. After the restructure, the part of the Kleenmaid appliance business that Mr Neville was responsible for continued to function in the same manner, except that it was noted on documents as EDIS Service Logistics trading as Kleenmaid Appliances. The restructure was introduced to all staff members in mid-2007 by Mr Bradley Young and it was announced that he would be the managing director and that the appellant would move into a separate role as chairman of the business with more to do with the technical evolution and design of products that would brought into the business from overseas manufacturers. Mr Neville reported to the appellant both before and after the restructure and, from his observations, there was no difference in the role that was performed by the appellant after the restructure than he had performed before the restructure. From January 2007 onwards, there were challenges in being able to pay the overseas manufacturers on time. Mr Neville was in contact with the appellant at least daily. The appellant was directly involved with the manufacturers and would be the main person from Kleenmaid’s perspective who would negotiate with the manufacturers when it came to matters relating to finance.
Mr Neville explained that daily he would typically discuss with one of the accounting team what sums of money were available on that day to pay overseas suppliers. There would typically be a three way discussion between the appellant, Mr Baker and himself or the appellant, Mr Pearce and himself as to the quantity of money that was available and then between the appellant and himself as to how that amount would be split up and paid to particular suppliers. He identified typical email communications that he made with the accounting staff identifying the current status of supply arrangements with suppliers and the demands of payment by suppliers and service providers. One such email to Mr Baker dated 19 February 2007 was document B00306776. It identified three suppliers that had Kleenmaid on “credit hold” which meant that the suppliers were neither manufacturing nor shipping product to Kleenmaid and eight suppliers that were still shipping, but required payment. The email referred to the service provider CEO Global Logistics requiring “catch up payments”. CEO Global Logistics was Kleenmaid’s main international freight forwarder and customs clearance agent or products into Australia.
Mr Neville explained a series of emails from Mr Charbon who was the managing director for Asia of supplier Brandt. In an email dated 28 September 2007 from Mr Charbon to the appellant (document B00306399), Mr Charbon rejected the appellant’s proposal to pay the amount outstanding of €921,000 by five weekly instalments, pending funding to EDIS on the change of the corporate ownership of Kleenmaid to EDIS. Mr Charbon required Kleenmaid to pay immediately €675,000 and noted “[o]ver the last 4 weeks Kleenmaid paid Brandt Asia only 61kEuro, we cannot accept promises”. In an email to the appellant, Mr Bradley Young and Mr Armstrong dated 25 October 2007 (document B00081636), Mr Charbon set out the issues that Brandt Asia had “following Kleenmaid financial problems and change of structure”. These included that Kleenmaid had failed to pay its due invoices for the last four weeks and the due amount had accumulated to €951,468 which was above their credit limit and did not allow for any more invoicing from Brandt and that it was necessary for Brandt to be able to report to their credit insurer that a regular flow of payments was being received from Kleenmaid to avoid a “declaration of payment incident” which could trigger an audit by the insurer which might suspend its coverage for any future trading. Mr Neville also identified many other emails involving the appellant in negotiations for payments to suppliers.
Mr Cole as the group credit manager for Fisher & Paykel had dealings with Kleenmaid after Fisher & Paykel purchased De Longhi which was supplying cookware to Kleenmaid. Mr Cole first reviewed the Kleenmaid account early in 2007 when the account balance was about $1.3m, some of which was overdue. Mr Cole dealt with the appellant in relation to repayment plans. Fisher & Paykel received a general notice to suppliers from Kleenmaid on 3 October 2007 about the transition to EDIS as the trading entity for the Kleenmaid Group (document B00081958). The notice was signed by Mr Armstrong as “General Manager – Finance” and requested suppliers to invoice EDIS for product that arrived in Australia from 29 October 2007.
Fisher & Paykel received another notice to suppliers from Kleenmaid dated 6 October 2007 (document B00081959) that set out the typical questions received from suppliers with Kleenmaid’s answers. The appellant and John Lavender were identified as continuing to manage product selection and technical issues and as continuing to “discuss programs and prices with suppliers”. This notice was also from Mr Armstrong. Mr Cole did not know John Lavender, but did know the appellant as he was the person that he communicated with about “99 per cent of the time”. Mr Cole had notified Mr Neville and Mr Armstrong on 5 October 2007 (document B00081775) that payment was expected as soon as possible of four invoices totalling €203,270 that had been due between 26 July 2007 and 29 September 2007 and noting that further invoices were due for payment on 27 October and 7 November 2007 that totalled €138,672. The email confirmed that under the terms of Fisher & Paykel’s insurance “Kleenmaid have now become a notifiable event” and that, until the account was paid, Fisher & Paykel were unable to supply any further product. Mr Cole explained that, under the terms of the insurance against bad debts, when an invoice becomes overdue for a certain period of time, the insurer has to be notified and the insurer gives instructions, as to the action to take in respect of the debt. If the insurance were cancelled, it meant that Fisher & Paykel could no longer deal with that customer. In that same email chain, the appellant responded to Mr Cole on 5 October 2007 advising him that as part of the restructure “we have two additional funding instalments from our bankers” that was likely to be available towards the end of the following week and proposed payment dates for the six invoices. By 23 October 2007, Mr Cole noted that only one payment of €69,000 had been received, when the appellant had proposed that three payments would be made by then.
The email from Mr Cole to the appellant dated 5 November 2007 (document B00081948) showed that a new payment plan was entered into by Kleenmaid with Fisher & Paykel that was supported by personal guarantees from the appellant and Mr Bradley Young and the executed documents were sent by email by the appellant to Mr Cole on 14 November 2007. The deeds of guarantee and indemnity signed by the appellant were in respect of the debts of EDIS and Kleenmaid Pty Ltd.
The appellant submits that Mr Armstrong’s evidence was central to the assessment of the reasons the appellant would not disclose to Westpac the financial statements of the Orchard Group. Unless the prosecution could prove beyond reasonable doubt that the appellant would not disclose the financial statements of the Orchard Group to Westpac, because of an agreement to conceal that information from Westpac that the appellant had made with Mr Bradley Young and Mr Armstrong, there must have been a reasonable doubt that the appellant believed he was lawfully entitled not to provide the financial records of the Orchard Group to Westpac. In light of Mr Armstrong’s evidence that the appellant had a consistent history of refusing to provide financial information about the Orchard Group in relation to loan applications made by other entities, the appellant submits the jury was not in a position to conclude beyond reasonable doubt that the appellant had knowledge of the concealment of other matters that made the non-disclosure of the requested information dishonest. The evidence at its highest indicates the appellant was aware of an application that was being advanced on behalf of EDIS.
Although the appellant submits that the evidence is incapable of allowing an inference to be drawn beyond reasonable doubt that the appellant agreed to be part of a plan to dishonestly gain a benefit for EDIS, the respondent did not have to prove that there was a formal plan or a formal agreement. The particulars relied on by the prosecution to establish the appellant’s dishonesty were that he “knew, approved of, and agreed” with Mr Armstrong and Mr Bradley Young that the full relationship and nature of the arrangements between the Corporate Group and the Orchard Group would not be disclosed and, relevantly, that the Corporate Group would be represented as dealing with the Orchard Group on a commercial, arms-length basis and, knowing that, the appellant “refrained or refused to disclose to Westpac, either himself or through Gary Armstrong, the true state of affairs”. It was therefore sufficient for the prosecution case to prove something less than an agreement, if the evidence established that the appellant knew and approved of the proposal about EDIS’ business that was to be put to Westpac by Mr Armstrong and Mr Bradley Young for the purpose of the loan application. Knowledge and approval by the appellant of the EDIS proposal to be put to Westpac to obtain a loan that would be used to pay existing creditors of the Orchard Group equated to the appellant’s consent or informal agreement to that proposal being put in that manner.
The overall evidence about the nature of the relationship between the Orchard Group and the Corporate Group planned for after the restructure, the appellant’s role in the business of the Kleenmaid Group, the specific evidence of the appellant’s knowledge of, interest and involvement in the EDIS’ finance application to Westpac, the appellant’s communications with creditors of the Kleenmaid Group prior to the Westpac funds becoming available in November 2007 which showed which existing debts would be satisfied from those funds, and the anticipated benefit that would therefore accrue to the Orchard Group by the reduction of its existing debts from the loan funds obtained by EDIS supported strongly the prosecution case. It was open to the jury to conclude that the appellant knew and approved of, or otherwise agreed, with the course taken by Mr Armstrong and Mr Bradley Young in respect of EDIS’ application to Westpac.
The respondent argues that, even if the appellant’s arguments are accepted as to what Mr Armstrong’s evidence showed in agreeing with propositions put to him by the appellant in cross-examination, it was still open on the balance of the evidence (including the contrary evidence of Mr Armstrong) for the jury to find the appellant guilty of count 1 beyond reasonable doubt, if they rejected the evidence elicited from Mr Armstrong in cross-examination.
The appellant’s so-called entitlement to keep the financial statements of Orchard Group to himself and not disclose them to Westpac in connection with EDIS’ application for finance is critical to the appellant’s argument in respect of count 1. The projected figures of EDIS were put forward to Westpac on the basis that EDIS would be conducting the appliance business pursuant to a licence agreement to use the Kleenmaid brand. The projected figures did not disclose the intention revealed by Mr Drake’s documented proposals that the deposits for the goods to be sold by EDIS were always to be paid to Order House which was in the Orchard Group. There was therefore a failure to disclose to Westpac that EDIS would be deprived, in the first instance, of the use of the significant cashflow generated by the payment of those deposits for the period of time until the delivery of those goods was made and the recoverability by EDIS of those deposits would, in the second instance, depend on the financial capacity of the Orchard Group to disgorge them.
The circumstances in which the appellant did not disclose financial statements of his group of companies to Westpac when EDIS acquired the spare parts business in 2001 were not the circumstances that applied to the takeover of the appliance business by EDIS in November 2007. By July 2007 the appellant was aware that another company associated with him (England & Young Holdings as trustee) had advanced $8.166m in 2007 to the Kleenmaid Group and prior to (and after) the application was made to Westpac, the appellant was involved on a daily basis in working out the priorities for the payment of creditors of the appliance business on the basis of the amount of cash available to the Kleenmaid Group. The siphoning off of cash from the sale of appliances that was ultimately due to be paid to EDIS to a company within the Orchard Group made the financial position of the Orchard Group in being able to account for that cash to EDIS most relevant to the success of the appliance business to be conducted by EDIS.
The appellant may have had a consistent history of refusing to provide financial information about the Orchard Group in relation to loan applications by other entities prior to November 2007, but in the circumstances of how EDIS’ appliance business was intended to function which involved a company in the Orchard Group controlled by the appellant, it was open to the jury to conclude that the appellant was dishonest in refusing to disclose that information to Westpac in connection with EDIS’ loan application and counselling Mr Armstrong to proceed with the loan application on the basis that the appellant would not disclose the Orchard Group financial statements. It was open to the jury to reject the attempt by appellant to distance himself from the EDIS’ loan application through Mr Armstrong in this way, where the proposed restructure was planned to involve Order House in the operation of EDIS’ appliance business from the outset.
Even though Mr Armstrong gave some evidence that was directly supportive of the appellant’s position by swearing the issue to some degree, there was other evidence before the jury from Mr Armstrong, but also from Mr Drake, Mr Hughes and the various employees who shed light on the appellant’s role in relation to critical decision-making in respect of the cash flow of the appliance business and the relationship with the suppliers of the appliances, that left it open to the jury to find the appellant guilty of count 1 beyond reasonable doubt on the basis that the appellant was liable for the offence by counselling or procuring Mr Armstrong to commit the offence.
There were other deficiencies in the information disclosed to Westpac in connection with the loan application relied on by the prosecution at trial, such as it was never the intent of the appellant that Orchard KM would transfer the title to the inventory to EDIS in exchange for the payment for the inventory and in relation to the transfer of the shares in EDIS, but it is not necessary to traverse these aspects of the evidence in order to dispose of this ground in respect of count 1.
Section 613 of the Code provides for the procedure, if a question arises about the fitness for trial of an accused person when he or she is called upon to plead to the indictment. Section 645 of the Code provides for the procedure when the issue of an accused person’s fitness to be tried (or, as it is expressed in s 645, soundness of mind) arises during the trial. The same test applies under both provisions, when the question of fitness is referred to a jury empanelled under s 613 to determine or to the jury before which the trial is proceeding under s 645 to determine.
The trial judge also referred to Kesavarajah at 245, including referring to the passage to the effect that sometimes the test has been stated in terms of “whether there is a reason to doubt the accused’s fitness to stand trial” and “the judge should leave the issue to be tried by the jury unless no reasonable jury, properly instructed, could find that the accused was not fit to be tried”.
The trial judge then referred to the standard directions that are given to a jury called upon to determine the issue of fitness for trial pursuant to either s 613 or s 645 of the Code.
The trial judge traversed the evidence in the reports of Dr Lonie and Dr Kovacevic and the evidence of Dr Kovacevic before the Mental Health Court on 13 November 2019 and noted that Dr Kovacevic was very careful about identifying the specific cognitive abnormality affecting the appellant. The trial judge noted that Dr Kovacevic took from Dr Lonie’s report that the appellant appeared to fall “between the bottom five to 10 per cent of population in terms of his auditory verbal memory functioning and … psychologists do standardise that in terms of age”. The trial judge noted that Dr Kovacevic then explained that means that one out of 10 or one out of 20 people would have similar deficits “but in the context of this trial and the cognitive demand of this trial and the length and complexity, and in the circumstances where Mr Young is to self-represent, I think he has no sufficient memory capacities to do that effectively”.
The trial judge then recorded his observations about the appellant’s participation in the trial, noting that there were occasions during the trial where the appellant had made cogent arguments and that, although there were many witnesses and documents, they were all on notice, with the prosecution daily sending reminder lists of witnesses and documents to the appellant. In addition, the trial judge noted that it was the third time the appellant was engaged in the trial and, because the case was largely document-based, there was little or no scope for surprise evidence. The trial judge referred to the time given to the appellant to prepare for cross-examination and that he had been given, when he sought it, the opportunity to confer with witnesses before cross-examining them. The trial judge then returned to the question whether the deficit identified by Dr Kovacevic made the appellant unfit in this particular trial and framed it in terms of the preliminary question of whether it was open to the jury to so find. On the basis of the measures that had been adopted to adjust the trial to make allowance for the appellant’s needs, the trial judge concluded that “there’s no basis … upon which a jury properly instructed could be satisfied [the appellant] is not fit for trial”. That conclusion reflected the terms in which the court in Kesavarajah at 245 expressed when the trial judge should leave the question for the jury.
The threshold question had to be determined by the trial judge on the basis that the appellant was self-represented.
Although the trial judge purported to address the threshold issue of whether the material before him raised a real question as to whether it appeared to be uncertain that the appellant was fit to be tried, it is submitted now on behalf of the appellant that there was material in the reports of Dr Kovacevic and Dr Lonie upon which a reasonable jury, properly instructed, could find the appellant was not fit to be tried. It is submitted the trial judge by taking into account his view of the consequences of the modifications made for the purpose of assisting the appellant in the trial trespassed on the jury’s role. The effect of submissions made on behalf of the appellant is that the trial judge in deciding the threshold issue against the appellant addressed more than the threshold issue and decided the ultimate issue that was the question for the jury pursuant to s 645 of the Code.
The appellant relies on the view expressed by the respondent’s senior counsel before the trial judge on 31 October 2019, when the reference to the Mental Health Court in respect of the State charges was brought to the trial judge’s attention. In discussing the possibility of the question of fitness in respect of the Commonwealth charges being raised in the trial, it was observed “if your Honour’s satisfied that there is a real question – and it would seem, perhaps, that’s not going to be a problem – we would then be saying that the procedure would be under 645 for the jury to consider the question of fitness”. Similarly during the course of argument on 6 November 2019, the respondent’s senior counsel referred to the report of Dr Kovacevic that accompanied the reference and submitted:
“… that alone provides a basis upon which your Honour would be satisfied that there is a real question arising accompanied with the repeated assertions in this trial by the defendant that he isn’t a person who’s capable because he is not fit, … the Crown has, having received the material, formed its own view, which has been articulated to your Honour, that the matter is raised as a real question now about fitness before this trial such that an inquiry through the jury should be conducted.”
The making of those concessions before the matter was then argued formally before the trial judge on 14 November 2019 did not preclude the trial judge forming his own view in relation to the material put before the trial judge for answering the threshold question, does not preclude the respondent from now arguing that the trial judge answered the threshold question appropriately, and does not make the task of the appellant any easier in showing that the trial judge was in error in deciding the threshold question against the appellant.
The respondent argues that, apart from the material that was put forward on behalf of the appellant for the purpose of the application made on 14 November 2019, the trial judge was entitled to have regard to all relevant matters which included the course of the trial proceedings and the earlier rulings made by the trial judge, the trial judge’s own observations and assessment of the appellant’s capabilities, the evidence that had been given in the Mental Health Court on the hearing of the appellant’s earlier reference, the reasons of Dalton J and the circumstances in which the application was made on 14 November 2019. The respondent points out that the threshold question was not to be answered on the basis of the opinions expressed by the appellant’s experts in isolation without taking into account an understanding of the adjustments that had been made to the trial procedure to make allowance for the appellant’s “minor” cognitive deficit and that he was self-represented. It is also submitted that Dr Kovacevic’s opinions did not take into account the nature or form of the evidence to be adduced in the prosecution case and the numerous and extensive accommodations and modifications that had been made, and would continue to be made by the trial judge. The respondent submits that Dr Kovacevic’s opinions were theoretical and did not have regard to the reality of the trial proceeding.
The leading authority relied on by both parties is Kesavarajah. Kesavarajah concerned Commonwealth charges of conspiring to import heroin and the application of the Victorian provision equivalent to s 613 of the Code. Before the trial commenced, the trial judge read a report by one psychiatrist and heard evidence from another concerning Mr Kesavarajah’s mental condition. The first psychiatrist was of the opinion that Mr Kesavarajah showed evidence of an acute psychotic state and was not fit to plead, but the other psychiatrist considered that, despite his psychotic state, he remained capable of logical, rational thinking and it was apparent there had been an improvement in his behaviour in the recent days and he was fit to be tried. That psychiatrist did consider that Mr Kesavarajah’s psychosis could flare up under stress in such a way as to render him unfit to be tried. On the basis of this evidence, the judge ruled that there was not a serious question as to his fitness to be tried. The question of fitness was raised on two later occasions during the trial which lasted over four months and the trial judge did not reconsider his ruling. Mr Kesavarajah was convicted and his application for leave to appeal was unsuccessful. He then appealed to the High Court which held that the determination of whether Mr Kesavarajah was unfit to be tried was to be performed by the jury and not the judge on the basis that s 20B(3) of the Crimes Act picked up the relevant provisions of State law to determine whether the accused was unfit to be tried.
The joint judgment of Mason CJ and Toohey and Gaudron JJ (with whom Deane and Dawson JJ agreed except on the aspect of whether the jury may take into account the future, as well as the present condition of the accused) noted, at 246, the conflict of opinion of the psychiatrists (that was not resolved by the psychiatrist who considered Mr Kesavarajah was not fit to be tried accepting that things may have changed between his examination and the later examination by the other psychiatrist). It was also relevant that the second psychiatrist considered Mr Kesavarajah’s psychosis could flare up under stress in such a way as to render him unfit to be tried. It was therefore held, at 246, that the issue should have been left to the jury. It was also noted, at 246, that the question of fitness had to be determined by reference to the factors in Presser and the length of the trial and, in that particular case, potential interruptions to the trial by reason of exacerbation of Mr Kesavarajah’s condition should be considered by the jury in the context of whether “the condition is such that difficulties can be accommodated by an adjournment if and when they arise”.
It is therefore implicit from the joint judgment of Mason CJ and Toohey and Gaudron JJ in Kesavarajah that the jury is entitled to take into account their observations of the accused person during the trial that no doubt would be considered in the light of the submissions made on behalf of the prosecution and the accused person as to the relevance and significance of any such observations to the question before the jury. When the issue of the fitness of an accused person to be tried arises during the course of a trial, the jury that are otherwise hearing the charges are well placed to consider the question of fitness, because of their understanding of the nature of the issues in the trial and the evidence adduced at the trial and what is required of the accused person, subject to the directions given by the trial judge on the minimum requirements set out in Presser for an accused person to be fit for trial.
The fact that Flanagan J had determined in relation to the State charges that the appellant was fit to be tried had no bearing on the outcome of the threshold question determined by the trial judge, as it was the threshold question before the trial judge and not the ultimate question. The respondent’s submission that the trial judge was entitled to take into account the circumstances in which the application was brought on 14 November 2019 after Flanagan J had ruled that the appellant was fit cannot be accepted.
The importance of keeping separate the threshold question and the ultimate question was emphasised in R v Khallouf [1981] VR 360. Mr Khallouf had been found to be of impaired mentality and unfit to be tried and was being held in custody until the Governor’s pleasure was known pursuant to the Victorian provision equivalent to s 613 of the Code. He was brought again before the court, terminated his legal representation and made it clear he would conduct his own defence. A doctor then gave evidence before the judge that Mr Khallouf was properly termed “an hysteric, a very immature personality”, but that he was fit to plead on the basis of the factors set out in Presser. The trial then proceeded before a jury. Mr Khallouf behaved in an abnormal or eccentric way during the trial and the judge’s charge was almost completed, when the jury had a question about Mr Khallouf’s psychiatric state in relation to his not being represented. The judge informed the jury that was irrelevant. The jury returned a guilty verdict. Mr Khallouf applied for leave to appeal against his conviction on the basis the judge erred in failing to empanel a jury to establish whether he was fit to be tried, before the trial commenced, or erred in failing to submit to the jury the question whether he was fit to be tried, when the jury raised the question about his psychiatric state. The Full Court of the Supreme Court of Victoria at 364 considered that, before the trial commenced, the trial judge had put the wrong question to the doctor, as the doctor should have been asked whether there was a real and substantial question to be considered in relation to Mr Khallouf’s fitness to be tried. The rationale for that was explained at 364 that it was for the judge to say whether there is a real and substantial question to be considered, but if there is such a question, then it must be considered by the jury. The court then further stated at 364:
“In the present case the question whether there was a matter to be considered and the question whether the applicant was fit to be tried seem rather to have been run together. Difficult though it may sometimes be, it is important that they be kept separate.”
It was also implicit in Khallouf at 365 that the jury were entitled to take into account “the abnormal or eccentric behaviour of [Mr Khallouf] and upon his general demeanour during the trial”, if the question of his fitness to be tried had been referred to the jury.
In Ogawa, it was noted (at [112]) that the numerous pre-trial proceedings that were held at least up until shortly before Ms Ogawa’s trial began demonstrated that her fitness to be tried had been thoroughly canvassed in the course of those various pre-trial applications brought by Ms Ogawa. In the course of dealing with those applications the trial judge had made findings to the effect that Ms Ogawa was deliberately seeking to avoid a trial by “feigning mental incapacity”. There had been nothing to suggest that there had been some change in Ms Ogawa’s capacity during the trial where she was representing herself. It was therefore held (at [112]) by Keane JA (with whom Chesterman JA and Jones J agreed) that “the effect of the learned trial judge’s findings, which were not the subject of appeal, was that when the matter came on for trial, he was entitled to proceed on the footing that the appellant was fit to be tried and that any suggestion to the contrary on her part was a feigned attempt to frustrate the course of justice” and (at [113]) “the findings that the learned trial judge made, based on his observations of the appellant and the expert medical evidence, were sufficient to justify his Honour in regarding the appellant’s position raised at the start of the trial as a position which was not raised in good faith and which was devoid of substance”.
In Ogawa (at [110]), Keane JA had also treated the remarks of Kirby J in R v Tier (2001) 121 A Crim R 509, 521-2 as applicable to s 613 or s 645 of the Code. Those remarks included:
“It is only where there is patently no real and substantial question that the court may impute an absence of good faith, and decline to conduct an inquiry …”
As in Kesavarajah, the trial judge was given conflicting opinions of psychiatrists on whether the deficit the appellant’s auditory verbal memory precluded his fitness for trial, where he was self-represented and where certain accommodations were made in advance notification of the order of witnesses and documents to be tendered and in frequent adjournments.
Unlike Ogawa where the trial judge decided the threshold question on the basis of his experience in Ms Ogawa’s feigning incapacity and the benefit of the expert medical evidence given on the pre-trial applications concerning her incapacity, the material before the trial judge diagnosed a specific cognitive abnormality about which there was no dissent that it was not feigned and it had an effect on the appellant’s capacity to function in the trial. The question that was raised by the material before the trial judge where the appellant was self-represented and his specific cognitive abnormality had an effect on his capacity to function in the trial was whether certain accommodations or modifications made in the trial procedure made him fit to be tried.
In dealing with the threshold question, the trial judge dealt with the effect of the appellant’s accepted cognitive disability in the circumstances pertaining the trial that were known to the trial judge. The trial judge’s reasons suggest that he discounted the effect of Dr Kovacevic’s opinion by taking into account the trial judge’s familiarity with the accommodations that had been made during the trial to assist the appellant and that would continue to be made during the trial. To the extent the trial judge took into account greater detail of the accommodations made for the appellant than had been put to Dr Kovacevic in the Mental Health Court and the trial judge’s familiarity with the nature of the evidence and that it had been disclosed to the appellant previously, the trial judge, in effect, anticipated how that further information may have affected Dr Kovacevic’s opinion. It is therefore apparent from the analysis of the trial judge’s reasons for rejecting the application that the trial judge engaged in the merits of whether the appellant was fit to be tried and decided the ultimate question, rather than consider whether the material that was before him for the purpose of determining the threshold issue raised a real issue for the jury to consider about the appellant’s fitness to be tried.
There was enough in the material placed before the trial judge to raise a real issue about the fitness of the appellant who was self-represented to be tried. In this particular trial, the question of whether accommodations and modifications made to the trial process were sufficient to address the appellant’s cognitive deficit were for the jury to decide under s 645 in light of the evidence that may have been put before them on that aspect and their own observations of the matters relevant to the question they had to decide, as would no doubt be drawn to their attention by the respective submissions on behalf of the appellant and the prosecution. Once a real issue was raised, the threshold question was satisfied and s 645 of the Code required the jury to consider and determine whether the appellant was fit to be tried. Questions of convenience for the stage the trial had reached were irrelevant to whether the threshold question was satisfied: Kesavarajah at 248.
If the trial of an accused person continues, when the accused person may not have been fit for trial, there is a miscarriage of justice: Eastman v The Queen (2000) 203 CLR 1 at [319]. It was held in Kesavarajah at 248 that the object of the provision requiring the question of fitness to be determined by a jury was to ensure that a trial did not proceed in the face of an accused who was unfit to be tried and the proviso was not directed to such a situation.
The appellant has succeeded on ground 5 which means that the appeal should be allowed and the convictions should be set aside on all counts. As the appellant has not succeeded on ground 1 in respect of any of the counts, a new trial should be ordered.
Orders
The following orders should be made:
1.Appeal against conviction is allowed.
2.Convictions on all counts are set aside.
3.A new trial is ordered.
NORTH J: I agree with Mullins JA’s reasons and the orders proposed by her Honour.
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