Regina v J B Loiterton - [2005] NSWSC 905

No judgment structure available for this case.

Reported Decision:
54 ACSR 728

New South Wales

Supreme Court

CITATION:
Regina v J B Loiterton [2005] NSWSC 905

HEARING DATE(S): 15/12/04
17/12/04
21/02/05
14/03/05
24/03/05
29-30/03/05
1/04/05
21/04/05
22/04/05
10-11/05/05
17-20/05/05
10/06/05
14/06/05
21/06/05
23/06/05
26/08/05

JUDGMENT DATE :

13 September 2005

JURISDICTION:
Common Law Division
Criminal List

JUDGMENT OF:
Kirby J

DECISION:
Sentenced to a term of imprisonment of 3 years commencing on 13 September 2005 and ending on 12 September 2008. Order that he be released on 12 March 2007 upon giving security in the sum of $10,000 without surety by recognisance to be of good behaviour during the balance of term.

CATCHWORDS:
Criminal Practice & Procedure - charge under s1311(1) of the Corporations Act 2001 (Cth) - making a misleading statement to Stock Exchange - plea of guilty - agreed he ought to have known misleading - issue whether knew - aged 65 years - investing public knowingly misled.

LEGISLATION CITED:
Corporations Act 2001 (Cth)
Crimes Act 1914 (Cth)

CASES CITED:
Shepherd v The Queen (1990) 170 CLR 573
De Simoni v The Queen (1981) 147 CLR 383
R v Williams [2005] NSWSC 315
Weininger v The Queen (2003) 212 CLR 629
R v El Rashid (unreported, NSW CCA, 7.4.95)
Siganto v The Queen (1998) 194 CLR 656
Cameron v The Queen (2002) 209 CLR 339
R v Thomson & Houlton (2000) 49 NSWLR 383
R v Sharma (2002) 130 A Crim R 238
R v Atholwood (1999) 109 A Crim R 465
R v Maslen & Shaw (1995) 79 A Crim R 199
R v Hinton (2002) 134 A Crim R 286
R v Todd (1982) 2 NSWLR 517
R v Wright [1980] VR 593
R v Goward (unreported, NSW CCA 16.10.98)
R v Thompson [2003] VSCA 164
R v Williams (2005) 53 ACSR 534
R v Adler (2005) 53 ACSR 471
R v Cassidy [2005] NSWSC 410
R v Pantano (1990) 49 A Crim R 328

PARTIES:
Regina
John Barrie Loiterton

FILE NUMBER(S):
SC 2003/134

COUNSEL:
P W Neil SC (Crown)
M Ierace SC (Offender)

SOLICITORS:
Ms K Marinos - Cth DPP (Crown)
K Worthington (Offender)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
CRIMINAL LIST

JUSTICE DAVID KIRBY

Tuesday 13 September 2005

2003/134 REGINA v John Barrie LOITERTON
REMARKS ON SENTENCE

1 KIRBY J: On 29 June 2004, John Barrie Loiterton pleaded guilty before Davidson AJ to the following offence:

"On or about 21 October 1998 at Sydney in the State of New South Wales did commit an offence against section 1311(1) of the Corporations Act 2001 ('the Act') in that he breached section 999 of the Act in that he made a statement, being an announcement to the Australian Stock Exchange Limited, that he knew or ought reasonably to have known was materially misleading, and which was likely to induce the purchase of securities in Clifford Corporation Limited by other persons, or was likely to have the effect of maintaining or stabilizing the market price of securities in Clifford Corporation Limited."

2 When the plea was entered, Counsel for Mr Loiterton identified an issue. Mr Loiterton acknowledged that he ought reasonably to have known that the announcement was materially misleading. He did not concede, however, that at the time it was made he knew it was misleading.

3 On 26 August 2004, the matter was again listed before Davidson AJ. On that occasion Mr Loiterton, through Counsel, acknowledged that he knew, at the time that the announcement was made, that it was materially misleading.

4 Davidson AJ was not able to complete the matter. It then passed to me as the sentencing Judge. It was listed for submissions on sentence on 15 December 2004. A companion matter, involving Mr Loiterton's fellow director, Mr Ian Hall, was listed on the same day. When the matter began, Mr Jauncey of Counsel for Mr Loiterton said that his client had given tentative instructions to withdraw his plea. He asked for time to confer. Counsel for Mr Hall said that he was in the same position. The matter was briefly adjourned. When it resumed, Mr Loiteron adhered to his plea. Mr Hall, however, made an application to withdraw his plea. And so the two matters were separated. Mr Loiterton's matter was fixed for submissions on sentence on 29 March 2005.

5 On 29 March 2005, Mr Ierace SC appeared with Mr Jauncey for Mr Loiterton. The Crown tendered an Agreed Statement of Facts (Exhibit A). Three days had been set aside for evidence and submissions. The matter, however, could not be completed in that time. It was stood over until 10 May 2005.

6 On 10 May 2005, Mr Ierace SC appeared without Mr Jauncey. He sought leave to withdraw the concession made by Mr Jauncey on 26 August 2004 that Mr Loiterton knew that the announcement was misleading when it was made. Mr Ierace said that his client came to realise that the announcement was misleading some time after its despatch. After argument, leave was given.

7 A number of witnesses were then called, including Mr Loiterton. Again the time set aside proved insufficient. The evidence was completed on 14 June 2005, which was Day 12. The parties then prepared lengthy written submissions. They spoke to those submissions on 26 August 2005.

8 It remains for me to pass sentence. Before I do so, I must determine the facts relevant to the sentencing discretion. Where the facts are adverse, they must be established beyond reasonable doubt. Where they favour Mr Loiterton, it is enough that they should be proved on the balance of probabilities.

The issues.

9 Here, the fundamental issue is whether the Crown has proved beyond reasonable doubt that Mr Loiterton knew, at the time he made the announcement to the Stock Exchange on 21 October 1998, that it was materially misleading. The Crown relied upon a circumstantial case, as well as the admission made by Mr Jauncey, on behalf of Mr Loiterton, on 26 August 2004. According to the Crown, none of the circumstances was an indispensable link in a chain of reasoning towards an inference of guilt (Shepherd v The Queen (1990) 170 CLR 573). Together they demonstrated Mr Loiterton's knowledge of the misleading nature of the press release which he authorised.

10 I will later closely examine the announcement to the Stock Exchange, which is the subject of this charge, and why it was misleading. The announcement included the following words, referring to an agreement with an American corporation:

"Settlement is scheduled for February 1999 with a cash payment of AUD 13.5 m."

11 In essence, the announcement was misleading because it made no reference to what had to be done by Clifford Corporation before it would receive the cash payment. There were a number of conditions. They were onerous. Clifford's ability to fulfil those conditions was the more problematical because of its precarious financial position. Mr Loiterton knew the terms of the agreement. He understood the conditions. He well understood the company's financial position. Yet, according to the Crown, he made no reference to those conditions because he was anxious only to give the market good news. His objective was to boost the share price, reversing the steady decline which had seen Clifford's share price halve since March 1998. He withheld any reference to the conditions, lest they detract from the good news of the announcement. This, according to the Crown, was not a case of inadvertence. Mr Loiterton knew full well that the announcement which he authorised was misleading.

12 Mr Loiterton denied any such knowledge. He said that he came to recognise much later that he ought to have known that the announcement was misleading. However, it did not occur to him at the time. He did what he believed was in the best interests of the company. He was never motivated by self interest or greed. He circulated the draft press release to directors and officers of the company. He also provided it to a lawyer on staff. He invited their comments. None, including the lawyer, raised any objection. The announcement was then made. He now acknowledges his mistake. But it was never his intention to mislead the market.

Corporate structure.

13 Mr Barrie Loiterton was a director and the chairman of Clifford Corporation Limited ("Clifford Corporation"), a publicly listed company. His friend of 35 years, Mr Ian Hall, was also a director. Mr Loiterton was also a substantial shareholder in the company. Through various private companies, Mr Loiterton held at least 27 million ordinary shares and 92,000 preference shares. The shares were held beneficially or by members of his family, through a trust which he and his wife controlled. By 1997, Clifford Corporation had become Australia's largest manufacturer of heavy vehicles, such as buses and coaches.

14 The Signature Group Australia Limited ("the Signature Group") was a wholly owned subsidiary of Clifford Corporation. It leased city office space, which was fitted out to a high standard, and then sublet to a range of tenants.

Negotiations to sell the Signature Group.

15 In September 1997, Clifford Corporation released an Information Memorandum inviting proposals to merge the Signature Group with a similar business in Australia or overseas. An American company with a similar business worldwide, I B Your Office International Limited ("IBYO International") expressed interest. On 8 October 1997, a Preliminary Agreement was signed in Los Angeles. It was a statement of intent. It acknowledged the need for further documentation to be exchanged by 30 November 1997. It contemplated that a public company, to be known as IBY0 International, would be created and listed on a Stock Exchange in the United States or London or Hong Kong. The company would acquire the business of IBYO International for US$40 million and of the Signature Group for US$19.68 million. Clifford and IBYO International agreed that they would subscribe to the new company or underwrite the raising of the capital which would be required.

16 On 16 October 1997, an announcement of the sale was made by Clifford Corporation to the Stock Exchange in Sydney. The announcement gave the price in Australian dollars as $26.81 million. According to the announcement, the sale would provide a handsome return on Clifford's investment in Signature. It was made clear that the contract was subject to the completion of due diligence enquiries. Settlement was expected in early 1998.

The Citibank facility.

17 The prospect of selling the Signature Group was no doubt regarded by Clifford Corporation and its directors, including Mr Loiterton, as an exciting and favourable development. On 19 December 1997, Leisuremark Pty Limited ("Leisuremark") applied to Citibank for a Professional Share Financing Facility in the amount of $1.485 million. Such facilities were available to finance business investments. Mr Loiterton and his family interests owned approximately 63% of the shareholding in Leisuremark. Mr Loiterton, Mr Hall and Mr Loiterton's son, Peter, were the directors of Leisuremark, and a related company, Blenheim Holdings Limited ("Blenheim"). The money provided by Citibank was to be used by Blenheim to exercise options which it held in Clifford Corporation. The arrangement required that Leisuremark would lodge 6.5 million Clifford shares as security with Citibank. Mr Loiterton and Mr Hall were required to guarantee the loan. Clifford shares were then selling at 47 cents per share, so that almost $3 million was being provided as security.

18 Citibank agreed to make the funds available for a period of six months, which was ultimately extended to twelve months. The loan document was executed on 19 January 1998. It was a term of the agreement that Citibank could make margin calls on Leisuremark if the value of the security, that is, the Clifford shares, fell below a certain level. The lender fixed what was termed "a maximum financing ratio", that is, a ratio between the loan balance and the value of the marketable security, in this case 60%. Being aware that the market fluctuated, Citibank had what it termed "a buffer zone". It would permit the ratio to rise to 70%, but not beyond. Once it reached 70% it would make a margin call requiring the borrower to take action to restore the financing ratio to 60%.

19 On the Crown case, Mr Loiterton and his family therefore had a substantial personal stake in the wellbeing of Clifford Corporation and its share price. That, according to the Crown, provided a motive to mislead the market in order to boost the share price.

The Paris Agreement.

20 The arrangements contemplated by the Preliminary Agreement in relation to the Signature Group, were delayed. The parties met again in Paris in February 1998.

21 On 14 February 1998, they executed a variation to the Preliminary Agreement, which became known as the Paris Agreement. Arguably, it gave rise to no binding obligation since, amongst other things, it contemplated a further agreement (the Final Agreement) to be entered within 60 days.

22 The Paris Agreement incorporated the following provisions:

· First, IBYO International would bring into existence a US Corporation to be known as IBYO International (Holdings) Inc ("Holdings").

· Secondly, Holdings would then acquire the business of IBYO International for US$45 million payable, as to US$40 million, in shares in Holdings and as to US$5 million in cash.

· Thirdly, Holdings would also acquire the business of the Signature Group for US$13 million, payable as to US$10 million in shares in Holdings and as to US$3 million in unsecured notes. There were to be three such notes, each for US$1 million, maturing over three years.

· Fourthly, Clifford was to be entitled to certain expenses, as well as "compensation", payable in instalments. The instalments were to be paid between 8 October 1997 (being the date of the Preliminary Agreement) and 30 June 1998 (the projected date of completion). Provision was made, in the event that instalments were not paid on the due date, that the amount may be paid to Clifford in cash or further shares in Holdings. There was no provision for interest on monies unpaid.

· Finally, Clifford Corporation guaranteed the projected income of the Signature Group over the next three years (namely US$2.692 million per year), as set out in the original merger proposal, the Information Memorandum.

23 Having signed the agreement, an announcement was made to the Stock Exchange on 27 February 1998. The announcement included these words:

"The Signature Group sale agreement has been confirmed. The effect of the sale, which will yield a total of USD19.68m, will be brought to account in the current year. The final agreements will result in cash, together with shares in the new holding company, IBYO Holdings Inc."

24 The market responded. Whereas the price of Clifford shares had been steadily declining between November 1997 and March 1998 (from about 56 cents per share to about 45 cents), the price momentarily recovered, as it did each time there was an announcement in the months that followed.

25 The Crown, in its submissions, was critical of the press release of 27 February. It said this: (CS 25(90))

"Good news was put forward without qualification when it should have been qualified."

26 It was the Crown case that this was part of a pattern of conduct on the part of Mr Loiterton. He withheld from the market anything that may dampen the positive message he wished to convey. It was, according to the Crown, questionable whether the Paris Agreement had "confirmed" the sale. The agreement contemplated a further agreement. On any view, the agreement was subject to "due diligence", which involved an examination of Signature's accounts. Ultimately, as I will shortly describe, the "agreement" came unstuck, precisely because the Signature accounts failed the due diligence examination.

27 Counsel for Mr Loiterton disputed the Crown's construction of the press release. Mr Biber, an in-house lawyer for Clifford, told Mr Loiterton that the Paris Agreement was enforceable, advice which he later confirmed in writing. More than that, Mr Loiterton passed the press release to his fellow directors, as well as Mr Biber. No-one suggested any amendment. The text of the release, moreover, referred to "the final agreements", alerting the market to the fact that more remained to be done. There is substance in the last of these arguments.

28 A further objection was raised by counsel for Mr Loiterton. Even were the press release misleading, there were difficulties in using it in the way the Crown had suggested. First, Mr Loiterton had not been charged with having mislead the Stock Exchange on 27 February 1998 (De Simoni v The Queen (1981) 147 CLR 383). Secondly, the document was admitted as background. It was not to be used as propensity evidence.

29 The Crown responded that the press release of 27 February 1998 (and others that followed) was not an aggravating circumstance in respect of the charge. The Crown did not rely upon this or like material as propensity evidence. It was part of the circumstantial case, relevant to Mr Loiterton's state of mind when he published the announcement of 21 October 1998, the subject of the charge. According to the Crown, the press releases went beyond mere "spin". Information was deliberately packaged in a way that excluded anything that might detract from the positive message that he sought to convey. The material, in my view, was admissible as part of the Crown's circumstantial case. I will return to this issue later in these remarks.

The Group's profit figures.

30 On 4 March 1998, Clifford Corporation made a further announcement to the Stock Exchange. It released preliminary results for the six months ended 31 December 1997. It announced a net profit of $3.6 million. An interim dividend of $1.35 per share was foreshadowed. The results included, as income, the expenses and compensation payments contemplated by the Paris Agreement, totalling almost $3.8 million, although they had not yet been paid.

31 On 10 March 1998, there was a meeting of the Audit Committee of Clifford Corporation. Mr Hall was the chairman. Mr Crogan was a member of the committee. He was a director of Clifford and a chartered accountant. He raised concerns about the inclusion, as income, of the expenses and compensation referred to in the Paris Agreement. He believed, on current documentation, that would involve "audit difficulties". Mr Crogan followed up with a memorandum dated 16 March 1998. He suggested that the Corporation's external auditors should substantiate the agreement with IBYO International and the "realisability of the fees".

32 The consolidated results which had been used by Clifford Corporation for the purposes of its Stock Exchange announcement had not been examined by an external auditor. At that time, Clifford Corporation was in the process of replacing its external auditors. Grant Thornton, Chartered Accountants, were appointed in May 1998. Mr William Chapman and Mr Andrew Archer from that firm were then given the task of auditing the Clifford accounts.

33 On 27 May 1998, the Clifford board met with Mr Loiterton as chairman. The board papers included a report from the joint company secretary, Mr Ellis. Mr Ellis forecast a $9.9 million profit for the year ended 30 June 1998. His calculation included an item "IBYO fees" of $2.9 million payable to Clifford Corporation and $7.3 million payable to the Signature Group, a total of $10.2 million. The forecast profit therefore was made up entirely of fees payable upon the completion of the sale of the Signature Group. It assumed that it was appropriate to incorporate such fees in the current financial year. The board accepted Mr Ellis' report. Its resolution included the following words:

"... the Board was satisfied that the applicable amounts of money related to the IBYO purchase of Signature group are recoverable and thus able to be treated as a debtor."

34 A further Stock Exchange announcement was made on 2 June 1998. It included the net profits forecast by Mr Ellis. It said this:

"4. Net profits will approximate $10.0m in the current year rising to more than $40.0m in 2001 as part of the 3 year development plan being released today."

35 The reference to a three year development plan came from a document which Clifford Corporation released the same day. On 2 June 1998, the Clifford held "a road show", which was a video presentation, to which stockbrokers were invited. They were provided with a document known as The Three Year Plan. The $40 million forecast was based upon amounts said to be derived from the sale of Signature.

36 During the course of the video, Mr Loiterton said this:

"During the year we sold Signature to the US based IBYO Group. The price of about US$19 million is payable in cash and shares. This will return a considerable surplus on our original outlay."

37 As these words were spoken, a still frame appears on the screen in these terms:

Signature

SOLD 1998

Approx $US 19 million

38 The Crown pointed out that neither the press release of 2 June nor the video alerted the market to the conditional nature of the sale. The "due diligence" survey was not yet complete. The final agreement had not yet been signed.

39 The shares in Clifford Corporation had been selling for 56 cents in February 1998. By May the share price was 44 cents. It rose briefly in June 1998, no doubt in response to the profit announcement of 2 June and the optimism of the Road Show, before continuing its decline.

40 On 11 June 1998, the auditors met with Mr Ellis and Mr Sapier. Mr Sapier was a joint company secretary and a director. He was also a member of the audit committee. The auditors brought with them an agenda. The agenda included the Signature contract. When, they asked, would the final contract be signed?

The meetings in San Diego.

41 In May 1998 Mr Sully, a director of IBYO International, came to Australia to carry out a due diligence examination of Signature. He was assisted by another director, Mr Myer. IBYO International also retained Arthur Anderson and Co to make an examination of the Signature operation and accounts and to report back.

42 On 13 June 1998, Mr Loiterton left Sydney with Mr Hall for San Diego. They were to attend an IBYO International board meeting the following day, when they hoped to sign the final agreement for the sale of the Signature Group.

43 However, the board of IBYO International met in advance of their arrival. Messsrs Sully and Myer reported on their due diligence enquiries. Their report was adverse. It included the following comment, as recorded in the board Minutes of IBYO International:

"In reality it was felt that a lot of Signature Group's profits were derived from one off transactions and creative (but perfectly legal) accounting treatments. There was also a real risk that the Signature Group Companies would require cash and working capital support. ... It would appear that a lot of income was derived by cash incentives paid by landlords to take on five to ten year leases."

44 Arthur Anderson and Co had, by this time, also provided their preliminary report. It too was adverse. It was their view that, without significant changes to the transaction, they could not recommend that it proceed. The board of IBYO International therefore resolved not to proceed at present with the acquisition of the Signature Group.

45 Meanwhile Mr Loiterton and Mr Hall arrived in San Diego. They met with the board on 14 June 1998. Minutes of that meeting were prepared by IBYO International. They were unsigned. The Chairman of that company, Mr Brettman, provided a statement, which was tendered by the Crown (Ex A). He said that the minutes were accurate. When he was cross examined at the committal, however, he had an imperfect recollection of the meeting. Mr Sully also provided a statement which described the meeting. His description broadly coincided with the minutes. The minutes run to several pages. They record a discussion which plainly lasted some time. Mr Loiterton, on the other hand, said that the meeting was very short, perhaps two or three minutes. It was then adjourned and resumed in another room with only some of the board members, including Mr Sully.

46 The issue is whether, in one location or another, the discussion as recorded in the minutes took place. Mr Loiterton accepted that the words attributed to him were accurate (T512). He and Mr Hall were told that IBYO International had resolved the previous day that it would not proceed with the Signature Group acquisition in its current form. And they were told why. They were apprised of the due diligence findings of Messrs Sully and Myer and Arthur Anderson, which were adverse. The minutes included these words: (Ex B, p191)

"Mr Loiterton acknowledged and confirmed his agreement that the deal as previously structured cannot now proceed."

47 The "deal" as previously structured was, as Mr Loiterton acknowledged, the "deal" based upon the Preliminary and Paris Agreements. Although Mr Loiterton said, at one point, that he did not recall agreeing that the "deal" could not proceed (T507), it is plain that he did agree, as he acknowledged elsewhere in his evidence (T259, 511).

48 The minutes also included the following statement:

"Mr O'Toole and Mr Myer emphasised that the previous deal was dead."

49 Mr Loiterton insisted that that was not said. Indeed, he could not recall Mr Myer and Mr O'Toole being involved in the meeting. I think it likely, however, that it was said. Certainly, that was the effect of the stand taken by IBYO International. Indeed, on 26 August 1998, Mr Brettman wrote to Mr Loiterton in the following terms, referring to the San Diego meeting: (Ex B, p307)

"In order to clarify our position, I would like to point out that our initial deal was cancelled and that this was acknowledged and agreed by you at our meeting in San Diego."

50 Mr Loiterton, in his response, did not suggest otherwise.

51 Nonetheless, IBYO International, having made its position clear, continued to talk. It was plainly still interested in some form of engagement. The unsigned minutes of the next day, 15 June 1998, recorded the following: (Ex B, p195)

"At the end of the meeting Signature Group were to produce presentable accounting information by Wednesday 24 June."

52 Mr Loiterton sent an email to his son the following day, 16 June 1998. He stated that "the existing accounting work is rejected and will not be used". It was necessary that Clifford start again. He directed that a particular accountant be engaged to assist in that work. He added: (Ex B, p196)

"Must be - repeat must be - the most professional report we have ever done as our credibility at this time is low - cannot be any lower. Our accounting credibility is even worse."

53 Mr Loiterton and Mr Hall then returned to Australia.

The Ellis letter.

54 In the second half of June 1998, Mr Ellis, the joint company secretary, had a break down. He went off work. On 22 June 1998 he sent an email addressed to Mr Loiterton and Mr Hall. It was a personal letter and a cry from the heart. It was also a damning commentary upon the state of the Clifford Group's finances. On the subject of cash, Mr Ellis said this: (Ex N)

"None of the operations generate any sustainable cash levels. Clifford has no external revenue & needs about $200k per month."

55 He added:

"Every day & every week I have to try & find cash for one entity or another, knowing that it is forever decreasing our cash reserves."

56 Under the heading: "Justifying profits after release of forecasts", Mr Ellis wrote this:

"For the past 12 months all of Clifford's reported profits have had to be manufactured in one shape or another in order to support forecast profit releases, some of the transactions from June 1997 have yet to be finalised & here we are at June 98. Profits have not come from operational trading."

57 Mr Ellis added that the forecast profit of $10 million announced on 2 June 1998 appeared doubtful if the auditors refused to permit the fees from the Signature transaction to be treated as income in the current year. There were other problems as well, which he identified. He concluded his letter with these words:

"This has been a hard letter to write & as I said at the start it probably doesn't cover everything, but at least it puts most things down & let me get it off my chest."

58 Mr Loiterton was shown Mr Ellis' letter during the course of his cross examination. It was a long letter, so he was provided with a copy during an adjournment. He gave evidence that he had never seen it before (T254). The whole thing was a fabrication (T253). He remembered, however, that Mr Ellis became ill and went off work.

59 The following day Mr Loiterton was reminded of his evidence before Bergin J in April 2003, that is, two years earlier. In those proceedings he had been shown Mr Ellis' letter. He told her Honour the following: (T294)

"A. ... I recall receiving the letter and I recall certainly giving it much of my attention. I don't think I reacted by doing anything particular at that time because I think most of (the) things I was doing I had already started doing in any event or was doing it."

60 Confronted by the transcript, Mr Loiterton acknowledged that he had been mistaken in the evidence he had given the previous day. He said that he had genuinely forgotten the letter. He agreed, however, that had he seen it in June 1998, he would not have expected to have forgotten it (T293).

61 Mr Loiterton's counsel, in submissions, suggested that Mr Loiterton's original denial appeared to be genuine. It was a lapse in recollection, perhaps explicable on the basis of the depression and other ailments from which he has suffered.

62 I reject that submission. The letter from Mr Ellis was unforgettable. It was plainly genuine. It was, as I have said, a cry from the heart. It included many personal details of a man in anguish. The evidence of Mr Loiterton was false. It provided a significant indication of his unreliability as a witness.

Informing the auditors.

63 It will be remembered that Messrs Loiterton and Hall returned to Australia shortly after 16 June 1998. On 18 June 1998, the auditor Mr Archer, sent a facsimile to Mr Sapier, as a member of the audit committee, asking for the following:

" SIGNATURE -

· Current status of signing contract

· If not signed

- arrange a copy of latest draft

64 You would have expected Messrs Loiterton and Hall, upon their return, to have told the board and the auditors exactly what happened in San Diego. Specifically, you would have expected them to relate, first, that the deal as previously structured (based upon the Preliminary and Paris Agreements) had been rejected and would not proceed, secondly, that Messrs Loiterton and Hall had accepted that fact, and thirdly, that negotiations were continuing in the hope of a new deal, which had not yet been formulated or concluded.

65 It is plain, however, that this did not occur. The agreed statement of facts included the following, in relation to the auditors: (para 14)

"... The auditors were not informed that IBYO International had informed the offender at the San Diego meeting that they would not proceed with the agreement as it was then structured to purchase Signature."

66 The board and other officers of the company were provided with some information. They knew the outcome of the meeting in San Diego had been adverse. Mr Biber, the in-house lawyer, was told by Mr Hall that it had been "a bit of a disaster". He was also told that it was "resurrectable". But he was not told, and nor were the auditors, that the Preliminary Agreement and the Paris Agreement were no longer even arguably binding. That was important because these agreements were the foundation for the Group's projected profit of $10 million, which had been announced on 2 June 1998. Both Mr Biber and the auditors continued to believe that the Preliminary Agreement and the Paris Agreement had continuing relevance.

67 On 26 June 1998, there was an informal board meeting of Clifford attended by Messrs Loiterton and Hall and a number of other directors, including Mr Sapier. The Signature sale was discussed. The board was reminded of the request for information by the auditors. Mr Loiterton assured the board that Mr Hall would prepare a memorandum in respect of the sale.

68 The memorandum had still not been prepared by 6 July 1998. Mr Sapier wrote to Mr Loiterton in terms which displayed how little he knew about what had happened in San Diego, even though he was a director. He said this:

"Re: FEEDBACK TO AUDITORS

Further to our meeting on 26 June, 1998 you undertook to prepare a synopsis report for me on the Signature sale position ...

I undertook to the auditors to forward to them a draft copy of the Signature contract. Ian Hall forwarded to me a draft early last week however I now understand that this has been superseded."

69 On 8 July 1998, Mr Hall composed a memorandum directed to Mr Loiterton. The memorandum included a preamble which purported to describe the meetings with IBYO International in San Diego. Nothing was said about the refusal of IBYO International to proceed with the deal as structured, nor Mr Loiterton's acceptance of that position. Mr Hall then included the following words: (Ex B, p212)

"When we pressed for settlement prior to June 30, you will also recall their request to delay for some weeks; even a suggestion to change the purchaser of Signature from Holdings to International. In San Diego they informed us that these difficulties were summarised in 'Goodwill' and taxation arrangements. Accordingly proper due diligence of their group was unavailable in a form required by us and as a consequence we agreed to a further delay."

70 That statement was false, as Mr Loiterton acknowledged in his evidence. It gave the impression that the problem lay with IBYO International (T270). Mr Hall's memorandum attached two letters, one dated 10 April 1998 and the other 21 June 1998. Each was from Clifford Corporation addressed to Mr Meyer (sic), a director of IBYO International, then in Melbourne. The letters purported to record the agreement on behalf of IBYO International with Clifford Corporation to extend the deadline for settlement. They gave the impression, which was false, that the date for final settlement set by the Paris Agreement in February 1998, had been extended by agreement, and was now fixed for 16 August 1998. Mr Loiterton, when giving evidence, said that he knew of no agreement to extend these settlement dates. He said that he did not see the letters attached to Mr Hall's memorandum. Indeed, had he done so, he most likely would have rejected the document. He would immediately have recognised that they were false.

71 I do not accept that evidence. The memorandum of 9 July 1998, which Mr Loiterton read and signed, made reference to each of these letters in the preamble, where the annexures were described. It said this: (Ex B, 205)

" Preamble

I attach herewith the following documentation:

1. A memorandum from Ian Hall, who has the running of the project at this time.

2. A copy of a letter dated 21 June and 10 April. On each occasion attested to the extension of time requirements, which incidentally were confirmed at the meeting in San Diego and subsequently in the meeting of 7 July. ..."

72 Mr Loiterton's memorandum was addressed to the Audit Committee. He gave evidence that he did not know it would be passed to the auditors (T269). I reject that statement. Mr Loiterton certainly knew it would be provided to the auditors. Mr Loiterton had been told by Mr Sapier on 6 July 1998 that the auditors were pressing for a report on the Signature contract. The sequence of memoranda that followed that letter, beginning with the memorandum of Mr Hall of 8 July, the opinion of Mr Biber of 9 July and Mr Loiterton's memorandum of 9 July, suggest a co-ordinated effort. Indeed, it is instructive that Mr Hall did not write to the auditors directly, as he might have done. He wrote to Mr Loiterton. Mr Loiterton then provided his memorandum with annexures, including Mr Hall's memorandum. Together they provided the company's answer to the auditors' requisition.

73 Mr Loiterton said he did not read the annexures. He said it was not his practice to do so (T267). That, I think, is most unlikely. He was, I believe, attempting to distance himself from the annexures and especially Mr Hall's memorandum, which was plainly false. Whoever composed the memorandum had already assembled the annexures, which were not simply listed, but described. Why, in these circumstances, would Mr Loiterton refrain from reading them? This was not a routine document. The right of the company to record a profit, as announced on 2 June 1998, would largely depend upon the material in this memorandum, as Mr Loiterton well knew.

74 However, one does not need to read the annexures to appreciate the misleading nature of Mr Loiterton's memorandum of 9 July. The memorandum quite deliberately created the false impression that the Paris Agreement was still on foot and relevant. I have already referred to paragraphs one and two of the Preamble. The remaining paragraphs described the attachments in these terms: (Ex B, 205)

"3. A copy of the Preliminary Agreement dated 14 February, known as the Paris document, which amends the original transaction, establishes the settlement parameters and brings the agreements to a final state.

4. Final draft of the stock purchase agreement dated 5 June, which has subsequently had a number of very minor amendments and there are further minor amendments in train at this time.

that the current agreements

75 The reference in paragraph 5 to the "current agreements" was a reference to the Preliminary Agreement and the Paris Agreement (which are also referred to in paragraph 3), which had been the basis of the proposed settlement before the San Diego meeting. That basis had been rejected by IBYO and Messrs Hall and Loiterton had accepted that rejection.

76 In cross examination Mr Loiterton gave the following evidence: (T275/6)

77 Mr Loiterton accepted, well before 9 July 1998 when he signed this memorandum, that the Preliminary Agreement and Paris Agreements did not bind IBYO International. His memorandum suggesting that they did was deliberately misleading.

78 The second page of the memorandum is worse. It sought to call in aid agreements he knew were not binding to justify profits which the company had already announced. He said this:

and that position remains at this time."

79 It was false to suggest that the "position remains at this time". Mr Loiterton well knew that the position was not the same. Mr Loiterton's memorandum to the Audit Committee quite deliberately created the false impression that only a few minor administrative steps remained before final arrangements were made with IBYO International to consummate the Paris Agreement.

80 Mr Sapier passed Mr Loiterton's memorandum to the auditors on 16 July 1998. The auditors responded by letter to the audit committee on 14 August 1998. They questioned Mr Biber's opinion concerning the enforceability of the Paris Agreement. They noted that Mr Biber specifically refrained from expressing a view concerning the jurisdictional difficulties which would arise in attempting to enforce the agreement.

The Crogan memorandum.

81 On 17 July 1998, Mr Crogan, a director of Clifford, prepared a confidential memorandum for Mr Loiterton. It dealt with the current financial status of Clifford. It was a handwritten document. It had not been typed because Mr Crogan regarded the contents as extremely sensitive. He was an experienced and well qualified accountant. Mr Loiterton said the memorandum was prepared at his request.

82 Mr Crogan began his analysis by looking at cash flow. The cash requirements of Signature and Clifford were approximately $300,000 to $400,000 per month. The sum of $3 million was required by the end of August. Creditors were owed almost $8 million, including a liability for group and other taxes of $1.459 million. On Mr Crogan's calculation, the group would have made a loss of about $2 million, but for the Signature sale. As to the Signature sale, Mr Crogan said this: (Ex M)

"The sale of Signature has not been reviewed. Concern exists as to:

· Value ascribed to Signature - effectively a negative cashflow business.

· The accounting treatment of sale and the ultimate ability to book the profit on sale at 30th June."

83 Mr Crogan added: (p4)

"If Signature sale cannot be included, a loss will be incurred. Implications:

· Prior announcements to market.

· Unsecured Note Covenants will be breached (Interest Cover).

· Heller Loan Covenants also breached?"

84 He suggested that the Signature sale was therefore critical. Without the profit from that sale, the company would have no capacity to pay preference or ordinary dividends. He then said this: (p5)

Market

Is the market properly informed given the current status:

· Prior Announcements.

· The Broker/Investor presentation.

· The Three Year Plan."

85 Under the heading "Required Remedial Action", Mr Crogan added these words: (p7)

"Market

The information being provided to the market/bankers etc must be reviewed. The current information is probably misleading.

Do prior announcements need to be corrected?"

86 Mr Crogan met with Mr Loiterton. He said that his report contained some disturbing findings. He felt that he had not been properly informed (T327). He tendered his resignation, effective immediately (21 July 1998). Mr Loiterton asked him to reconsider. However, he refused to be deflected.

87 Mr Loiterton acknowledged that Mr Crogan's report raised serious issues. He accepted that the Signature sale was critical. He said that he sought to implement the measures which Mr Crogan had identified. Application had been made to the Hong Kong Bank and the Shanghai Bank for funds which would provide working capital.

88 Mr Loiterton acknowledged that the market was unaware of Clifford's serious financial problems (T291). He knew that the group had a continuing obligation to the Stock Exchange to furnish timely information that a reasonable person would expect to have a material effect on the price or value of securities (T293). He said he sought advice from Mr Biber. He acknowledged that no disclosure was made to the Stock Exchange.

89 The Crown suggested that this was part of a pattern of suppression of anything that may adversely affect the share price of Clifford. I accept that compliance with the Stock Exchange requirements required disclosure.

Attempts to secure a new agreement.

90 On 21 August 1998, Mr Loiterton wrote to Mr Ken Sully, a director of IBYO International. He reviewed the history of their negotiations. He referred to the Preliminary and Paris Agreements, as well as their differences in San Diego in June 1998. Mr Loiterton identified seven issues that needed to be resolved before the matter could proceed. He ended by setting out a proposal "for further discussion".

91 Mr Brettman, the chairman of IBYO International, responded on 26 August 1998. I have referred to this letter already. Mr Brettman did not mince words. He said this: (Ex B, 307)

"In order to clarify our position, I would like to point out that our initial deal was cancelled and that this was acknowledged and agreed by you at our meeting in San Diego. What is presently being discussed constitutes an entirely new deal in respect of which no agreements have been entered into. This is stated for the record and to avoid any misinterpretations. Of course, this should not prohibit any further discussions, might they be in the direction of your recent letter, or any other new and creative ideas."

92 Mr Loiterton wrote again to Mr Brettman on 27 August 1998, discussing a number of issues. Mr Brettman responded the same day. With his characteristic bluntness, he identified the fundamental conditions for any agreement between IBYO International and the Clifford Corporation in respect of the Signature Group. He would only sign a Final Agreement under the following conditions: (Ex B, 311)

"1. Your side will guarantee that IBYO will not have to come up with any cash for this deal, out of its core business as of today.

2. Clifford will underwrite or join with the group of venture capitalists, a take over for IB Your Office International Holdings and all of its subsidiaries for the price of US$40 million. Clifford will underwrite their costs and part of the potential take over. The shareholders of IBYO will be prepared to accept 50% of the US$40 million in cash and 50% in shares.

3. In the case that the take over does not happen in the time frame of 150 days from closure of the sale of Signature to the completion of the initial transaction, Clifford and IBYO will re-wind the initial agreement and as a consequence, Clifford will be responsible for the costs."

93 Mr Loiterton wrote to Mr Brettman on 31 August 1998, agreeing to these terms. Settlement was scheduled for 18 September 1998.

94 On 10 September 1998, a new draft Stock Purchase Agreement was provided by the lawyers for IBYO International. Mr Loiterton passed it to Mr Biber for his comments. Mr Biber provided a written commentary. Referring to the previous draft of 5 June 1998, he reminded Mr Loiterton that he had raised "significant concerns regarding the lack of security for Clifford in entering into the transaction in its earlier form". He continued:

"This concern is now even greater given the terms of the September 10 draft Agreement. In short, there is no security whatsoever to Clifford for the transfer to Holdings of all of its shares in Signature. ..."

95 Mr Biber reminded the directors of their fiduciary duty to the Clifford Corporation, and the requirements of s232(4) of Corporations Law, that they exhibit due diligence in the discharge of their duty as officers of the company.

96 Mr Loiterton thereafter wrote to Mr Sully in the United States, seeking clarification of certain terms. Mr Sully responded on 2 October and again on 8 October 1998, reaffirming the terms of engagement identified by Mr Brettman on 27 August 1998 (supra para 92). The agreement prepared by IBYO International reflected those terms.

Preparation for the US listing.

97 Mr Brettman's terms were significantly more onerous, from the viewpoint of Clifford, than those imposed by the Preliminary and Paris Agreements. Those agreements contemplated a joint effort to merge IBYO International and Signature into a single entity that would be listed on NASDAQ or some other exchange. The cost would be shared. Under the new arrangement defined by Mr Brettman on 27 August 1998, Clifford was to arrange the listing and pay the costs. Although attempts were made to suggest the arrangement was the result of Mr Brettman's view that Clifford was better able to perform these tasks, they were unconvincing. It was an unfair and lopsided arrangement, which reflected the dominant position of IBYO International after San Diego.

98 Clifford, accepting this reality, made enquiries with William Blair and Co concerning the requirements of listing. Clifford and IBYO International contemplated that, before listing, a venture partner, or partners, would be identified. In early September 1998, Mr Ellis wrote to a boutique investment consulting company, US Capital Consultants, to obtain assistance in locating a suitable partner, willing to invest in the venture and participate in the listing.

99 On 15 October 1998, US Capital Consultants forwarded a proposal to raise capital. The timeframe that IBYO International and Clifford had in mind was clearly shorter than usual. US Capital Consultants said this: (Ex 8)

"Our previous proposal of September 11, 1998 provided a scope of engagement similar to that presented herein except in two areas:

1. Period of engagement has been shortened to 180 days to secure a letter of intent from an investor.

2. USCC is to provide advice on the structuring of the transaction."

100 The consultants made it clear that the new venture partner would make a thorough due diligence examination. The proposal said this:

"The first step in our process is to conduct a due diligence review of the Company in each of its major areas of operation. This provides us with an in-depth understanding of your operations, and more importantly, enables us to identify weaknesses in the Company that could either discourage a potential venture capital investor from proceeding or enable the investor to value the Company at an amount less than its fair value. If identified quickly, the weaknesses can either be corrected or explained in the best possible light. The identification of the strengths also ensures that we 'sell' the key benefits to venture capital investors."

101 US Capital Consultants envisaged beginning its campaign on 2 November 1998. It is clear that they expected the campaign to take six months or more. They would require $30,000 a month in advance, plus incentive payments based upon the capital raised.

Deteriorating financial position.

102 Meanwhile the auditors of Clifford Corporation wrote to Mr Loiterton on 2 September 1998. It is plain from their letter that they were still addressing issues arising from the terms of the Paris Agreement, having never been told that that agreement was no longer relevant. Nonetheless, the auditors, at some stage, were apparently told that there was a new draft agreement. The letter from Grant Thornton included these words: (Ex B, 319)

"You have advised that there is a new draft agreement which I have not as yet seen so I am unable to comment further at this time.

I do however reiterate the point that I made verbally that the whole 'deal' as such, now appears to be a paper deal the success of which sinks or swims dependant upon a float some time in the future."

103 Mr Loiterton responded to the auditors on 8 September 1998. Again he was less than frank. His letter was written as though the Paris Agreement (and the fees and compensation to be paid under that agreement) still had some relevance. Mr Loiterton said this on behalf of the board:

"We have determined yesterday that notwithstanding

· the settlement agreement has been confirmed by exchange of letters;

· the settlement agreements are currently being amended to reflect the adjusted transactions which includes a finite closing date of 30 days from execution;

at this time it would be more appropriate not to recognise the income within the profit and loss accounts to 30 June."

104 On 11 September 1998, Clifford Corporation announced to the Stock Exchange its preliminary final results for year ended 30 June 1998. Whereas it had foreshadowed a $10 million profit on 2 June 1998, based upon funds said to be payable under the arrangement with IBYO International, its profit expectation was revised to $753,000. The announcement included the following words:

"The Signature sale, due for settlement in the next quarter, has not been brought to account."

105 On 15 September 1998, the Australian Stock Exchange sought an explanation for the variation in the profit forecast.

106 The market responded. The share price fell. Whereas the share price for Clifford shares had been 44 cents in July 1998, by early September its shares were selling for 36 cents. By mid September they had dropped to 28 cents.

107 In these circumstances, Citibank made its first margin call on Leisuremark. The agreed margin rate was 60%. The fall in value of Clifford shares meant that it had moved to 77.42% (Ex AF). The loan balance stood at $1.383 million. Clifford therefore faced the prospect of Citibank selling a significant parcel of Clifford shares, which may have further adversely effected the share price. Instead, Leisuremark paid $253,000 in cash to bring the margin back to 60%.

108 Clifford meanwhile attempted to raise finance. It met with executives from the Hong Kong Bank of Australia on 28 September 1998 to discuss an A$25 million facility. The loan was designed to pay out its existing financier, Heller Financial Services, and provide working capital. The bank made it clear that a condition precedent of any loan was the settlement of the Signature sale (Ex AE). Clifford indicated that settlement was expected within the next 14 to 21 days.

109 However, the Clifford share price continued to decline. On 5 October 1998, Citibank made its second margin call upon Leisuremark. Again, the call was satisfied with cash ($164,200), removing the need for Citibank to sell the Clifford shares it held as security. That cash, however, provided only a short reprieve. Three days later, on 8 October 1998, Citibank made a third margin call. By that time the settlement with IBYO International had been arranged. The chairman, Mr Brettman, and Mr Sully would arrive in Sydney on 17 October 1998. Settlement would take place that week. Citibank, in the circumstances, agreed to an arrangement whereby Leisuremark would, after the settlement, and without destroying the market, sell down Clifford shares over a 13 week period to repay the loan (Ex AF).

110 This was the context within which the settlement took place.

Settlement with IBYO International.

111 On Monday 19 October 1998, the chairman of IBYO International, Mr Brettman, and the directors Messrs Sully and Myers, met Messrs Loiterton and Hall at the Clifford Sydney office. Mr Sully had a copy of the final version of the Stock Purchase Agreement, which was then discussed. Mr Biber, the company solicitor, was not present. However, he was provided with a copy of the agreement by email and asked by Mr Loiterton to review its provisions. Mr Loiterton made arrangements to see Mr Biber the following morning.

112 The agreement with IBYO International was concluded the following day, Tuesday 20 October 1998. In its final form it consisted of a Stock Purchase Agreement, which was signed by the parties at about 3.00 pm, and a side letter. The side letter varied the obligations arising under the agreement. The side letter went through a number of drafts, commencing at 10.36 that morning and concluding late that afternoon. It was signed at about 6.00 pm.

113 Two important issues arose concerning the side letter. First, who was responsible for the side letter? Mr Loiterton said that it was Mr Biber. He acknowledged that in minor ways he and Mr Sully had contributed to its wording. Mr Biber, however, denied any involvement in the drafting of the side letter. He said that he saw it for the first time in January 1999 when it was shown to him by the Administrator of Clifford.

114 The second issue concerns Mr Loiterton's instructions to his secretary, Ms Karen Mackey, after the letter had been signed. Ms Mackey said that Mr Loiterton told her to put the letter "in the safe" and that is what she did. Mr Loiterton, however, denied having given such instructions. He acknowledged he may have said that he was giving her the document "for safe keeping". He did not even know that there was a safe.

115 Let me then turn to the evidence in respect of each of these issues.

The events of 20 October 1998.

116 Mr Loiterton, in accordance with the arrangements made on the Monday, met Mr Biber the next morning, Tues 10 October 1998. He said they met at 7.00 am or thereabouts. Mr Biber said they met much later that morning. They discussed the Stock Purchase Agreement. The terms of that agreement included the following provisions, as set out in the agreed statement of facts: (para 22)

Clause 2.1 and 2.2

Clause 2.3

Clause 2.4

117 The agreement also imposed, in clause 7.8, an obligation upon Clifford to secure a purchaser acceptable to IBYO International, for 50% of the shares in the company which was about to be established for a sum of US$30 million. That clause reflected the requirements of Mr Brettman, which he defined in his letter of 27 August 1998. Mr Biber said that he regarded such a provision as unfair. He suggested that it be deleted and replaced by a clause in these terms:

"2.7 Obligations of the Parties. The parties shall secure ready, willing and able purchaser(s) who will have entered into a legally binding acceptable obligation to acquire 50% of shares in Buyer from Buyer's then current shareholders at a total price of not less than USD30.0 million in cash. At closing 50% of the total outstanding common stock of the Buyer shall represent 500,000 shares after giving effect to the issuance of the Buyer's common stock to seller hereunder."

118 Mr Biber, when describing the meeting, said that their discussion did not include any reference to a side letter. Mr Loiterton disagreed. He said Mr Biber referred to a side letter as a means of varying the agreement.

119 In the course of the morning, Mr Biber sent Mr Loiterton a memorandum. The memorandum attached certain documents that were to be annexed to the Stock Purchase Agreement. Mr Biber then said this: (Ex 6)

"I think you will find it difficult to persuade IBYO to give you the flexibility you require to the transaction at this very late stage. You could either have a side letter at the time of exchange or amend the SPA in the following manner: ..."

120 There followed a suggested paragraph on a subject unrelated to the obligations under the former clause 7.8 or the suggested clause 2.7. Mr Biber concluded his memorandum with these words: (Ex 6)

"I cannot see how the change can be realistically incorporated without their being a completely revised asset sale agreement as against the existing share sale agreement."

121 After the meeting, Messrs Loiterton and Hall met Messrs Brettman, Sully and Myer in the boardroom. Mr Brettman examined the agreement and saw the revision made by Mr Biber, which had been incorporated into the document. He was, to put it mildly, displeased. According to the agreed statement of facts, the following exchange then took place:

"Brettman: This is not what we agreed upon. I want it changed to the original agreed version. The burden is on your shoulders, not ours.

Loiterton: Sure, let's do that. Let's go through the rest of the document first."

122 Mr Loiterton said that he later returned to his office. He met Mr Ellis. Together they saw Mr Biber giving instructions to Mr Loiterton's secretary, Ms Karen Mackey. He was standing alongside Ms Mackey, dictating as she typed. Mr Loiterton was then given the first draft of the side letter. As he returned to the boardroom, to resume his discussions with IBYO, he spoke to Mr Biber. It was a brief discussion in the corridor, lasting perhaps two or three minutes. He had amended the draft of the side letter and asked Mr Biber to check it.

123 The side letter dealt with the obligations of the parties arising from clause 2.7 which Mr Biber had inserted. Whereas that clause defined a shared obligation, the side letter made it clear that it was the obligation of Clifford and Clifford alone. The side letter effectively restored the terms of the previous clause 7.8 as Mr Brettman had directed. The final draft, composed late on 20 October 1998 but bearing a date 21 October 1998, was in the following form: (Ex 0)

"We refer to Stock Purchase Agreements which have yesterday been exchanged between our companies in respect of the sale of the shares in Signature Group Australia Limited.

We confirm the following contemporaneous understanding.

Notwithstanding the terms of clause 2.7 of the agreements, wherein these obligations are stated to be the obligations of the parties, it is clearly understood and agreed that with the consent of your company that the obligation to satisfy this clause shall be to our account as well as our obligation solely. Should we fail to fulfil these obligations prior to closing, you are authorised to terminate the abovementioned Stock Purchase Agreement with simple written notice, in accordance with Article 10.

We will advise you further."

124 Mr Biber, as mentioned, denied having anything to do with the side letter. He denied giving instructions to Ms Mackey. He had his own secretary. Although he had used Ms Mackey on occasions, they were rare and usually after hours, when his secretary was not available. He did not use her on 20 October 1998. He did not meet Mr Loiterton for a second time that day, even in the corridor. When reminded of evidence he had given earlier, he conceded the possibility of such a meeting, where he may have been asked to prepare the schedules which were ultimately annexed to the Stock Purchase Agreement. However, he insisted that he had not discussed with Mr Loiterton the side letter ultimately signed.

125 I have no doubt that Mr Loiterton's version is false. I accept Mr Biber's evidence. First, Mr Loiterton's account is inconsistent with the agreed statement of facts, which he read and agreed before they were tendered (T434/5). The statement included the following: (para 25)

"The offender proposed that the amendment to clause 2.7 be set out in a side letter to the SPA. Throughout 20 October the offender instructed his secretary Karen Mackey ('Mackey') to type various drafts of the side letter. Mackey prepared the final draft of the letter on 20 October 1998 and dated it 21 October 1998. Brettman and the offender signed the side letter in its final form on either 20 or 21 October 1998."

126 Secondly, the evidence of Ms Mackey, Mr Loiterton's secretary, was consistent with the agreed statement of facts, that is, that she received her instructions from Mr Loiterton.

127 Thirdly, Mr Loiterton's account was implausible. He said that he met Mr Biber twice that day, first at 7.00 am or thereabouts and later for a few minutes in the corridor. The first meeting was before the board meeting. By the time they met again in the corridor, Mr Loiterton had already been given the first draft of the side letter. Mr Loiterton had not asked him to prepare the letter. Somehow or other, Mr Biber knew that Mr Brettman had emphatically rejected the suggested clause 2.7, and there was a need for some form of variation, even though he was not at the meeting. Mr Loiterton imagined that perhaps Ms Mackey told him. There was no evidence that she had.

128 Fourthly, Mr Loiterton could not explain why the amendment was made by a side letter rather than to the contract. He said that time was short. Mr Brettman had to leave Australia by Wednesday midday. It was convenient to make the amendment by side letter. However, once clause 2.7 was rejected, the obligations effectively reverted to those under clause 7.8, which IBYO had originally proposed. The agreement existed in an electronic form. Other amendments were made that day, including by Mr Biber that morning.

129 Fifthly, the text of the draft side letters suggest the hand of Mr Loiterton, not Mr Biber. The first draft used the phrase "US Capital Consultants LLC and its Australian counterpart". Mr Biber said that he did not know what that phrase meant. He would not use that expression in a contractual document. The final draft made provision for the termination of the agreement "with simple written notice in accordance with Article 10". Mr Biber said that he would not use the phrase "simple written notice". Article 10 did not allow for the unilateral termination of the agreement. The agreement could be terminated, but not by "simple written notice". The provision relating to Article 10, which Mr Loiterton said was inserted by Mr Biber, was designed to protect IBYO International, not Clifford. I accept Mr Biber's evidence.

130 Sixthly, Mr Biber prepared a summary of the contractual arrangements with IBYO International on 21 October 1998 for Clifford's financier, Heller Financial Services. The summary made no reference to the side letter, which was consistent with Mr Biber not being aware of that arrangement.

131 Finally, the Crown attributed a motive to Mr Loiterton. It said this: (CS 63)

"It is submitted that when the Offender realised Mr Brettman was insisting on clause 7.8 being restored to its original terms (ie the financing obligation was to be solely Clifford's responsibility) he decided to use a side letter rather than amend the SPA so that the executed contract would reflect a joint financing obligation and the side letter would be kept from the market."

132 In examining that suggestion, it is relevant to look at the other issue of fact, namely, the instructions given to Ms Mackey. Ms Mackey made a statement on 2 April 2001 which included these words:

"25. ... I recall that shortly after completing a final draft of the letters, Loiterton returned the letters to me and said words to the effect of:

'Can you place these in an envelope and then put them in the safe.'

I then placed the two letters into a plain white standard size envelope before placing them into the safe. To the best of my recollection the letters Loiterton handed to me to place in the safe were signed originals."

133 Ms Mackey added:

"26. The safe in which I placed a copy of the signed SPA and the two letters dated 21 October 1998 had a combination lock that was known only by me. No one else had access to the safe. I do not recall any other occasion where I was requested to place business related documents into the safe. The usual contents of the safe included passports, cash, and share certificates. Clifford's computer back up tapes were also given to me on a weekly basis for safekeeping."

134 In cross examination, the following was put to Ms Mackey: (T548)

135 Mr Loiterton, as part of his denial, said that he was not even conscious that the company had a safe. However, Ms Mackey said, and I accept, that when Mr Loiterton returned from overseas he would hand her his passport and ask that it be put in the safe.

136 I accept the motive suggested by the Crown. Indeed, I would go further. Mr Loiterton's purpose was not only to conceal this aspect of the arrangements with IBYO from the market, but from prospective financiers. Heller Financial Services, as mentioned, was not told of the side letter, nor was another financier, the Wyllie Group. The insistence by IBYO that Clifford pay the cost of finding a suitable equity partner and the float was unreasonable. But it was the price that Clifford had to pay for an agreement. And Mr Loiterton knew that he had to secure an agreement.

137 It is instructive that, during the negotiations on 20 October 1998, the solicitor for the company, Mr Biber, was not present. Indeed, on 9 February 1999, Mr Biber wrote to Mr Loiterton and Mr Hall in these terms:

"Notwithstanding I had spent many months negotiating with IBYO's San Diego attorneys on the form and content of the proposed sale agreement, on 20 October 1998, those negotiations were taken over by officers of all interested parties to the exclusion of their legal representatives which culminated in the parties entering into the Stock Purchase Agreement dated 20 October 1998."

138 Mr Loiterton, I believe, preferred the flexibility which Mr Biber's absence gave him. No-one else on the board, apart from Mr Hall, knew of the side letter. Indeed, when the company went into Administration, the side letter was not amongst the documents which were provided to the Administrator. The Administrator only became aware of the side letter when he travelled to the United States and interviewed the directors of IBYO.

139 The Administrator later sought an explanation for the failure to provide the side letter. A letter was drafted by Mr Biber. It was sent by Mr Hall and Mr Loiterton. The letter contained falsehoods and specious arguments by way of justification. It did little credit to Mr Loiterton or Mr Hall, or for that matter, Mr Biber.

Reminder of financial difficulties.

140 Early the next morning, shortly before the announcement to the Stock Exchange, Mr Loiterton was reminded of the precarious financial state of Clifford. Mr Ellis sent him an email, which Mr Loiterton responded to early on Wednesday 21 October 1998. Mr Ellis' message was headed: "Audit Issues". It set out a timetable for the completion of the audit to enable the audited accounts to be incorporated into the annual report, which had to be filed. Mr Ellis' email also included these words: (Ex V)

"Other issues raised:

If financial statements are materially different to Appendix 4B (very possible), ASX requires differences and reasons to be published in annual report. If this is the case it is recommended that a separate release is sent to ASX adding some verbiage to the disclosure.

Andrew Archer suggested that sale of Revesby not effectively completed until after year end based upon sale to new party ie as original sale never completed then no sale ever occurred. Profit recorded in 96/7 accounts of $2,968,300.

Revenue recognised from Malaysia of $2.7m relates to 10 year licence therefore it is suggested this is deferred over 10 years."

141 Mr Loiterton's response at 7.54 am on Wednesday 21 October 1998, was in these terms: (Ex V)

"Some of the issues raised here have never been raised before. These will kill any bank application. Take control of this area NOW - discuss immediately with Ian Sapier and today I need an update in detail. Nothing can get in the way of this audit completion. All the applications in the world will be useless unless this is completed. YOU must take full control today. I want all directors to have an updated daily checklist and action etc on email. These potential variations are something new? What is anticipated? If you are not fully informed - become so now. I cannot take any risks on the refinancing program I am following."

142 The document is important. It preceded, by a matter of hours, the Stock Exchange announcement. It underlined the financial difficulties of Clifford. When taken to this document, Mr Loiterton acknowledged that Clifford certainly was at a turning point (T451). The Crown submitted that the correspondence gave emphasis to the conditional nature of the settlement which the company had just concluded. The ultimate success of the merger was dependent upon Clifford securing an equity partner willing to pay $30 million for 50% of the shares in the new company. The willingness of that partner to outlay money was dependent upon that partner being satisfied with its due diligence investigation of Clifford and, indeed, IBYO. The ability of Clifford to satisfy such an examination depended first, upon the successful conclusion of the audit, and secondly, upon the provision of finance. Even then, one wonders how it could overcome its past. It was simply not generating significant profits, as IBYO had observed in San Diego in mid June, as Mr Ellis said on 22 June 1998 and Mr Cogan repeated in July.

The Stock Exchange announcement.

143 By 10.30 am on Wednesday 21 October 1998, Mr Loiterton was provided with a draft of the Stock Exchange announcement. He was in conference with Mr Ellis. He assumed it came from Mr Hall. He read it strictly, that is to say, critically. Mr Loiterton added the heading and he and Mr Ellis made other small changes. The draft was then circulated in accordance with the usual protocol. It came back, initialled by Messrs Hall, Ellis and Biber. Mr Loiterton said he remembered seeing the red biro initials of Mr Biber. He added that, had any comment or suggestions been made, he would have considered them and made a decision, as he did on other occasions. However, no objection was raised by anyone.

144 At about midday, Messrs Brettman and Sully came to the boardroom. They were shown a draft of the press release. Because it was an important document they were invited to subscribe their initials, which they did. The announcement was then sent to the Stock Exchange shortly before 1.00 pm, using the fax in Mr Biber's office. It was in these terms:

SIGNATURE GROUP SALE TO IB YOUR OFFICE CONFIRMED

Clifford Corporation Limited

USD 60.0m

AUD 13.5m

IBYO had advised that it intends to continue its aggressive strategy with a combination of acquisitions and franchises, with the opening of over 70 centres during 1999, largely in the USA and Europe, making the IBYO group the largest business centre network in the world.

Mr Biber's initials.

145 Mr Biber, when he gave evidence, was shown the announcement. He acknowledged that the initials appeared to be his. However, he did not see the release. He did not subscribe his initials. The document was a forgery. He had a vivid recollection of the first occasion he saw the release. It was in early November 1998. The copy he saw had no initials. He recognised at once that the announcement was deficient and said so to Mr Ellis. Mr Ellis responded that Mr Biber had initialled the release, which Mr Biber denied. Mr Ellis then went to a file in which he kept press releases to the Stock Exchange (MFI 3). It was a thick lever arch file with many releases, most initialled in biro by various directors and Mr Biber. He showed Mr Biber a copy of the release. It was not the original. The copy included what appeared to be Mr Biber's initials.

146 The issue is important, according to Counsel for Mr Loiterton, because it bears upon the criminality of Mr Loiterton. Mr Loiterton, unlike Mr Williams in HIH Insurance, sought legal advice (cf R v Williams [2005] NSWSC 315, per Wood CJ at CL, paras 15-16). The fact that the company lawyer did not raise an objection did not relieve Mr Loiterton of responsibility. Nonetheless, according to Counsel for Mr Loiterton, it significantly mitigated his responsibility.

147 Mr Biber was an impressive witness, although he had a tendency to be dogmatic, repeatedly taking positions on minor issues which he was then forced to abandon once confronted by contemporaneous documentation or past testimony. Nonetheless, he struck me as a truthful witness in the account he gave of his conversation with Mr Ellis. Unfortunately, Mr Ellis, I infer through illness, had almost no recollection of this period of his life and could not assist (cf EX AG).

148 As mentioned, the original document which was said to have had Mr Biber's initials in red, was not available. Several expert document examiners examined the copies of the release retrieved from the Clifford files or the files of Mr Biber. Broadly, they agreed in their conclusions. Neither could rule out forgery. Both thought it likely that the initials on the copy were those of Mr Biber. Each considered the possibility of a cut and paste. Again, for various technical reasons (because it was an early generation copy), they thought that possible but unlikely.

149 Counsel for Mr Loiterton pointed to a number of other matters which suggested that the initials were not a forgery. Mr Biber, once shown the copy document by Mr Ellis, did not immediately go to the directors and demand an explanation. He said he did not do so because they had enough on their plates. Mr Biber, in his files, had copies of the announcement, with his initials. One must presuppose, therefore, if it were a forgery, that the forger boldly supplied Mr Biber with copies in accordance with the prevailing practice. The copies, incidentally, were placed on the file on or about the day of the announcement.

150 It is certainly possible that Mr Biber initialled the document. If he did so, it was without knowledge of the side letter. I am not persuaded, however, that it is probable that Mr Biber did initial the announcement. That, however, does not entirely answer the question. If the document was forged, it is not possible to say who was responsible. Mr Loiterton had an interest in having Mr Biber's acquiescence, but so did others. There is no evidence whatever to suggest that Mr Loiterton, or someone at his request, forged the document.

151 Let me pass from that issue and address the question raised by Mr Loiterton's Counsel. If one assumes that Mr Biber did subscribe his initials, would that significantly mitigate the criminality of Mr Loiterton? The answer plainly depends upon the circumstances. If Mr Loiterton knew that the announcement to the Stock Exchange was misleading, then the fact that an in-house lawyer subscribed his initials is a commentary upon the lawyer, but does not mitigate the offence. The initials of a lawyer, on the other hand, may be important where the director is uncertain and is looking for guidance.

152 I therefore turn to the issue of whether Mr Loiterton knew, at the time the announcement was made, that it was misleading. Before addressing that issue, let me identify what was misleading about the announcement.

Why the announcement was misleading.

153 The Stock Exchange announcement essentially conveyed three simple positive messages:

· First, the sale of Signature was now definite. It had been confirmed.

· Secondly, the settlement was scheduled for February 1999.

· Thirdly, Clifford would receive, at that time, A$13.5 million.

154 In fact the position was far more complex. The arrangements between Clifford and IBYO International, agreed on 21 October 1998, contemplated a merger between Signature and the IBYO organisation. A company would be created known as Holdings. Holdings would issue shares to Clifford and IBYO International in the proportions set out in the agreement. Before the merger was consummated, however, two things had to occur. First, Clifford had to find a venture capitalist, willing to enter a binding agreement that it would purchase 50% of the shares in the new company, that is, Holdings, for US$30 million which is $60 per share.

155 Secondly, the new company had then to be floated successfully on the NASDAQ exchange. Only then could Clifford expect to be paid. Under the side letter, Holdings had the right to terminate the arrangement should Clifford fail to induce a venture capitalist to commit to the purchase at the required price.

156 The receipt of cash by Clifford, therefore, was conditional upon signing up the venture capitalist at the stated price and a successful float. Yet the announcement made no reference to either condition, even though each was plainly formidable.

157 The Crown case included an opinion from Mr Peter Meares, a stockbroker of more than thirty years standing. Mr Meares expressed the view that the announcement would have induced the purchase of shares. It would, at the very least, have stabilised the market. It confirmed the imminent settlement and included the welcome news of the receipt of a substantial amount of cash. Trading, in fact, significantly increased after the announcement, even though it did not receive widespread publicity.

Did Mr Loiterton know?

158 I return to the fundamental issue which has occupied so much of this hearing, namely, did Mr Loiterton know, at the time he made the Stock Exchange announcement, that it was materially misleading?

159 There can be no doubt, on this material, that Mr Loiterton did know that the announcement was misleading. First, he was at the time of the announcement, a mature man. He was aged 58 years. He was an experienced company director.

160 Secondly, Clifford was confronted with a declining share price. The Signature sale had the potential, were it consummated, to offer real benefits to the group. The early announcements no doubt reflected the optimism of Mr Loiterton and others concerning the sale. The announcements should have been qualified because the Final Agreement had not yet been signed. The due diligence investigation had not been completed. However, in Mr Loiterton's mind, before San Diego, he may well have believed the agreement and those benefits were certain. With some charity, the announcements, although misleading, may not have been intentionally misleading. However, the position changed on 14 June 1998 in San Diego. From that point, Mr Loiterton well knew exactly how difficult it would be to secure the benefits of the merger. He was obliged to agree to unfair and onerous conditions as set out in the side letter. He would have understood how difficult it would be to interest a venture capitalist, to satisfy that investor's due diligence enquiries and to secure an undertaking to buy 50% of the stock. He also would have understood that it would be the more difficult because of the deteriorating financial position of Clifford. He knew that, even were Clifford to achieve all that, it must then successfully float the new company on the American exchange. He well knew that there was no certainty about any one of those steps. Yet the announcement made no reference to any of these pre-conditions. He understood, therefore, that the announcement was misleading.

161 Thirdly, the Crown pointed out that Mr Loiterton, in cross examination, all but admitted knowledge of the conditionality of the agreement in the following exchange: (T356)

162 Fourthly, the Crown case included a statement from Mr Sully (Ex A) which recorded the following conversation which he overheard, involving Mr Myer, also a director of IBYO International: (Ex A, para 23)

"Myer: I am concerned that the release does not disclose the conditional nature of the contract.

Loiterton: We'll take care of it. Thank you for your comments."

163 That, perhaps, is not strong evidence in that I did not see Mr Sully, nor Mr Myer. Nonetheless, it is evidence consistent with other material which I have identified.

164 Finally, I accept the Crown's submission that Mr Loiterton had a motive to mislead the market. He and his family had a substantial personal stake in the wellbeing of Clifford. Clifford's survival was bound up with arresting and reversing the decline in its share price. Mr Loiterton hoped that the Signature sale, signed up at last, would achieve that objective. It would only do that if the message were positive. He was not prepared to take the chance of a qualification or doubt dampening that message.

165 It is unnecessary to closely examine the admission made by Mr Jauncey of Counsel on 26 August 2004 when he acknowledged that Mr Loiterton knew that the announcement was misleading when made. Mr Jauncey was not called as a witness. It may, perhaps, be inferred that there was some misunderstanding. On the other hand, I found Mr Loiterton's evidence that he did not understand the difference between "know" and "ought to have known" unconvincing. They are not difficult concepts. He is an educated and intelligent man. He acknowledged, at least at one point, that he had given instructions to his Counsel to admit knowledge.

Events after the announcement.

166 The day after the announcement, the auditors wrote to the board of Clifford identifying a number of issues. They expressed the provisional view that, for reasons they identified, Clifford had potentially overstated its profits by in excess of $15 million. They also expressed doubt as to the ability of Clifford to continue as a going concern.

167 The agreed statement of facts recorded what occurred thereafter in these terms:

"37. In late October 1998 the offender attempted to raise short-term finance from the Wyllie Group, a major Clifford shareholder. Its managing director, Ian Hoad, was given a copy of the SPA but was not informed of the existence of the side letter.

38. On 11 November 1998 trading in Clifford's shares was suspended by the ASX, on the basis that Clifford had failed to lodge its annual report for the 1998 financial year.

39. In late November 1998 Starr-Dean Willocks were appointed as joint voluntary administrators of the Clifford companies."

The subjective case.

168 Let me move from the offence to certain issues which I am obliged to consider under s16A(2) of the Crimes Act 1914 (Cth). I have, in these remarks, already dealt with a number of issues arising out of that section relating to the offence. Let me, however, move from the offence to the offender, Mr Loiterton.

169 Mr Loiterton is now 65 years old. He has no relevant criminal convictions. Ordinarily that would demonstrate good character, which ought to receive some favourable recognition in sentencing. However, ASIC brought civil proceedings against Mr Loiterton in 2004. The matter proceeded before Bergin J. Her Honour made a number of declarations that Mr Loiterton had acted dishonestly in the exercise of his powers and the discharge of his duties as a director of the companies in the Clifford Group. These findings, for the purposes of sentencing, are not a matter of aggravation (Weininger v The Queen (2003) 212 CLR 629 at 638). They are, nonetheless, an aspect of Mr Loiterton's character and antecedents which show the offence now being dealt with is not an aberration (cf s16A(2)(m)). Moreover, even were it the case that Mr Loiterton had good character, that fact would not be a significant mitigating factor in the context of "white collar" offences such as that committed by Mr Loiterton (R v El Rashid (unreported, NSW CCA, 7.4.95, per Gleeson CJ).

170 Mr Loiterton has been married for 30 years. He has, from that relationship and a previous marriage, five children of whom four are adults. He has a number of grandchildren. He lives with his wife in the southern highlands at Wildes Meadow. His wife has a business known as Stratford Park, which is a lavender farm. It is a tourist facility managed by Mr Loiterton's daughter. Approximately 45,000 people visit Stratford Park each year. The farm consists of 275 acres or thereabouts, part of which, approximately 100 acres, has recently been sold for $4.3 million. Mr Loiterton works on the farm. In a pre-sentence report he was described as performing labouring work and sometimes acting as a waiter. His daughter gave evidence that, although he does not perform a managerial role, he does provide advice which is invaluable on issues of marketing and public relations. He receives a nominal wage of between $200 and $300 a week. According to his daughter, Mr Loiterton's wife had expressed the view that, without him, she would not be able to carry on the business.

171 Before the collapse of Clifford, Mr Loiterton was involved in certain charities. In February 1997, he was made a Life Governor of the Benevolent Society of New South Wales.

172 After the collapse of Clifford, Mr Loiterton suffered from depression. He has, since then, experienced depression from time to time. He was examined by a psychologist, Dr Lennings, on 7 December 2004. Dr Lennings formed the view that he was quite depressed.

173 Mr Loiterton has also suffered from cluster headaches for many years. Before the collapse of Clifford, they would occur every 18 months or so. An episode may last from four to ten weeks, involving severe repeated headaches which increase in intensity before ultimately disappearing. They are quite disabling. They became more frequent after the collapse of Clifford. When interviewed by the Probation and Parole Service in December 2004, Mr Loiterton said they were under control, with the aid of medication. At that time, he had not had such a headache for nine months. Mr Loiterton's daughter gave evidence of two severe episodes. Mr Loiterton needed oxygen and emergency treatment. On one occasion he collapsed.

174 Mr Loiterton's age and these ailments may make prison harder for him, were he to receive a custodial sentence. That is a relevant consideration.

The plea of guilty.

175 Mr Loiterton pleaded guilty to the offence. Ordinarily, that is a matter taken into account in mitigation, first, because it is usually evidence of some remorse and, secondly, because it spares the community the expense of a trial (Siganto v The Queen (1998) 194 CLR 656 at 663-664). Expressed in another way, it demonstrates a willingness to facilitate the course of justice (Cameron v The Queen (2002) 209 CLR 339 at 343). Although the guideline judgment in R v Thomson & Houlton ((2000) 49 NSWLR 383) does not apply to a Commonwealth matter, the analysis undertaken by the Court is relevant when considering the appropriate discount for the plea of guilty (R v Sharma (2002) 130 A Crim R 238). Ordinarily a discount of between 10% and 25% is given for a plea of guilty, the primary determinant being the timing of the plea. That issue is approached in a realistic way, recognising the forensic prejudice that may attach to an offender pleading guilty to some offences in circumstances where he wishes to contest others (R v Atholwood (1999) 109 A Crim R 465, per Ipp J at 468).

176 In May 2002, the Australian Securities Investment Commission commenced proceedings against Mr Loiterton charging two offences, including that of making a misleading statement to the Australian Stock Exchange. The committal was in July 2003. On 18 July 2003, Mr Loiterton was committed for trial in the Supreme Court in respect of both offences. During the course of the committal, Counsel for Mr Loiterton raised the possibility of a "charge bargain" proposal. The Crown said that any such proposal would be considered. However, no proposal was made at that stage. The indictment at that point charged Mr Loiterton with having made a misleading statement, knowing that the information was misleading. Mr Loiterton was arraigned on 7 November 2003 on an indictment in similar terms. Mr Loiterton pleaded not guilty to both counts.

177 On 6 May 2004, Counsel for Mr Loiterton approached the Crown with a charge bargain proposal. On 29 June 2004, the Crown presented a fresh indictment before Davidson AJ. There was only one charge, being the charge now under consideration. It alleged that Mr Loiterton either knew, or ought to have known, that the announcement to the Stock Exchange was materially misleading. Mr Loiterton pleaded guilty to that offence.

178 I have described already the course of the sentencing proceedings. On 10 May 2005, Mr Loiterton sought and was given leave to withdraw the concession made by Mr Jauncey of Counsel that he knew that the announcement was misleading.

179 Leaving the plea to one side, for the moment, and dealing with contrition (s16A(2)(f)), Mr Loiterton told the Probation Service that he was deeply sorry for the financial losses people had incurred. He told Dr Lennings that he had acted in good faith, but was extremely regretful of the consequences of the collapse, including the pain and dislocation to employees and his family. On the question of contrition, the Crown drew attention to the time it had taken Mr Loiterton even to accept that he ought to have known that the announcement was misleading. He said he first suspected that the announcement may have been misleading when he received a letter from the auditors on 18 November 1998 in which they alleged that it was. At the time he did not accept their assertion. However, it planted a doubt in his mind. During the committal in July 2003, he came to accept that he ought to have known that the announcement was misleading.

180 One of the documents tendered in the course of the sentencing proceedings were the written instructions given by Mr Loiterton on 13 December 2004 to his Counsel, Mr Jauncey (Ex 25). It is apparent that Mr Loiterton accepted little, if any, responsibility, and had no real contrition. Ultimately, however, on 15 December 2004, he did adhere to his plea. Mr Loiterton's insistence on 10 May 2005 that he did not know that the announcement was misleading again demonstrated the limits of his acceptance of responsibility.

181 What discount should be allowed for the plea and contrition? I accept that there was real utilitarian value in Mr Loiterton's plea of guilty. Had the matter gone to trial, it would have been relatively lengthy. It would have involved overseas witnesses or a video link. Nonetheless, the contested issues of fact on sentence, which have taken some time and which have been resolved against Mr Loiterton, do moderate the benefits arising from the plea. Put in another way, the course of the sentencing proceedings reflected the extent to which Mr Loiterton was prepared to facilitate the course of justice.

182 Turning to contrition, the plea is some evidence of contrition. However, generalised regret about the collapse of Clifford and the dislocation to employees, is rather different from remorse for having committed the offence. Moreover, there can be no real remorse without an acceptance of wrongdoing. Although Mr Loiterton has accepted that he ought to have recognised the announcement was misleading, he plainly does not accept that he knew that the announcement was misleading, although I believe he did know.

183 The allowance I have made for the plea and contrition amounts to slightly less than 15%, which I believe is appropriate.

Hardship to the family.

184 The Act requires, in s16A(2)(p), that the Court consider the probable effects that any sentence would have upon the offender's family or dependants. The Court of Criminal Appeal has, on a number of occasions, considered the sort of hardship that must be present before it can have an impact upon the sentence imposed. In R v Maslen & Shaw (1995) 79 A Crim R 199, Hunt CJ at CL at 209, stated that the hardship had to be sufficiently extreme, going beyond the sort of hardship which inevitably arises where a family is deprived of the breadwinner (see also R v Hinton (2002) 134 A Crim R 286, Howie J (with whom Wood CJ at CL and Sully J agreed), para 31.)

185 The hardship to Mr Loiterton's wife and his family, as described by his daughter, could not be described as "exceptional" for the purposes of the principle relating to hardship.

Other issues.

186 There are a number of other issues which, although not specifically identified in s16A(2), are relevant. There has been delay in the prosecution of Mr Loiterton. Proceedings were commenced in 2002, some three to four years after the offence had been committed. It then took some years for the matter to work its way through the Courts. Part of the delay was occasioned by the companion action for civil penalties before Bergin J in 2004. Nonetheless, the delay inevitably meant that Mr Loiterton was left in a state of uncertain suspense for some considerable time (R v Todd (1982) 2 NSWLR 517, per Street CJ at 519).

187 Further, it was suggested that, to some degree, Mr Loiterton and members of his family have been subjected to the shame and humiliation of publicity arising from these charges, which is a form of extra curial punishment. I accept that both delay and such punishment should be taken into account in the complex synthesis relevant to the ultimate sentence.

188 I should also refer to two other matters which are specifically identified in s16A(2). The Court is enjoined to consider the extent to which the sentence imposed should be directed towards the need for personal deterrence (s16A(2)(j)). There is, as well, an obligation to consider the prospects of rehabilitation (s16A(2)(n)). Mr Loiterton, as I have said, is working in his wife's business at Stratford Park. He is aged 65 years. As a result of the orders made by Bergin J, he has been banned from managing any corporation for 17 years ((2004) 50 ACSR 693). There is no need for personal deterrence. It is unlikely Mr Loiterton will offend again. His prospects of rehabilitation are excellent.

The appropriate sentence.

189 That brings me to the issue of the appropriate sentence, having regard to these considerations and the obligation under s17A of the Act to consider all alternatives to a custodial sentence, including alternatives that may be available in New South Wales (s20AB of the Act).

190 The maximum penalty for the offence is 5 years imprisonment and/or a fine of $20,000. The maximum is reserved for the worst class of case. The offence of Mr Loiterton cannot be so described, although unquestionably it is serious.

191 Reference has been made by the Crown and Counsel for Mr Loiterton to a number of cases where sentences have been imposed in respect of offences which involved false or misleading statements to the investing public. They include R v Wright [1980] VR 593; R v Goward (unreported, NSW CCA, 16.10.98); R v Thompson [2003] VSCA 164; R v Williams (2005) 53 ACSR 534; R v Adler (2005) 53 ACSR 471; R v Cassidy [2005] NSWSC 410.

192 The offence is within a class of offences sometimes referred to as "white collar" crime. The Courts, in respect of such offences, have repeatedly emphasised the importance of general deterrence. Wood J said this in R v Pantano (1990) 49 A Crim R 328: (at 330)

"... those involved in serious white collar crime must expect condign sentences. The commercial world expects executives and employees in positions of trust ... to conform to exacting standards of honesty. It is impossible to be unmindful of the difficulty in detecting sophisticated crimes of the kind here involved, or of the possibility for substantial loss by the public ... The element of general deterrence is an important element of sentencing for such offences."

193 Here, the crime of Mr Loiterton was objectively most serious. He was the executive chairman of Clifford Corporation, a public company. He held a position of trust. He knew the facts. He had negotiated and signed the agreement between IBYO International and Clifford. He was not relying upon information from others. He had been involved at every stage. He had also drafted and signed the side letter. He knew of the conditions that had to be met before the agreement would deliver cash to Clifford. He knew, by reason of the financial position of Clifford, what a formidable task meeting those conditions would be. He knew that to suggest to the investing public, without qualification, that Signature would receive $13.5 million in February 1999 was misleading. The statement was a formal announcement to the Australian Stock Exchange. It was made it the hope and belief that it would receive widespread publicity and positively effect the share price. In fact, as it happened, it received little publicity, although clearly it came to the notice of a number of investors. Trading in Clifford shares increased significantly after the announcement was made.

194 To adapt the words of Wood CJ at CL in R v Williams (supra) (para 19), it is essential for the proper operation of the securities market that prospective investors have faith in the accuracy of the information contained in notices issued to the Stock Exchange. That faith can only be maintained if an exacting standard of corporate governance, including full and accurate disclosure, is accepted by directors. Failure to perform to that standard, as occurred in this case, must be regarded as particularly serious.

195 Mr Loiterton is to be sentenced in relation to the announcement on 21 October 1998 and only that announcement. In my view, no punishment other than a custodial sentence would be appropriate. The appropriate sentence, before the discount for having pleaded guilty, is 3-1/2 years imprisonment. Allowing for a discount slightly less than 15% for the plea of guilty, the head sentence reduces to 3 years.

196 In accordance with s19AC(1) of the Act, it is necessary that I make a recognisance release order. Ordinarily the period served would be between 60% and 66% of the term imposed. I believe, however, that in the circumstances (especially having regard to Mr Loiterton's age and the delay) that a lesser period, namely 1 year and 6 months imprisonment, will adequately serve the need for denunciation and general deterrence. I make it clear that I have also taken into account delay and Mr Loiterton's age in fixing the head sentence.

197 John Barrie Loiterton, I sentence you to a term of imprisonment of 3 years commencing on 13 September 2005 and ending on 12 September 2008. I make an order that you be released on 12 March 2007 upon your giving security, yourself, in the sum of $10,000, without surety, by recognisance that you will be of good behaviour during the balance of your term.

198 Mr Loiterton, under the Act, I am obliged to explain to you the effect of that order. The sentence I have imposed will mean that you will be obliged to spend 1 year 6 months in custody. You will be released on 12 March 2007 upon entering a recognisance to be of good behaviour, without lodging cash security. That recognisance will continue until 12 September 2008.

**********

Citations

Regina v J B Loiterton [2005] NSWSC 905

Most Recent Citation

Cases Citing This Decision

2

MRM v R [2015] NSWCCA 195

Adler v The Queen [2006] NSWCCA 158

Cases Cited

19

Statutory Material Cited

2

R v Williams [2005] NSWSC 315

R v Thomson [2003] VSCA 164

R v Cassidy [2005] NSWSC 410

Actions

Download as PDF Download as Word Document

CITATION:	Regina v J B Loiterton [2005] NSWSC 905
HEARING DATE(S):	15/12/04 17/12/04 21/02/05 14/03/05 24/03/05 29-30/03/05 1/04/05 21/04/05 22/04/05 10-11/05/05 17-20/05/05 10/06/05 14/06/05 21/06/05 23/06/05 26/08/05
JUDGMENT DATE :	13 September 2005
JURISDICTION:	Common Law Division Criminal List
JUDGMENT OF:	Kirby J
DECISION:	Sentenced to a term of imprisonment of 3 years commencing on 13 September 2005 and ending on 12 September 2008. Order that he be released on 12 March 2007 upon giving security in the sum of $10,000 without surety by recognisance to be of good behaviour during the balance of term.

CATCHWORDS:	Criminal Practice & Procedure - charge under s1311(1) of the Corporations Act 2001 (Cth) - making a misleading statement to Stock Exchange - plea of guilty - agreed he ought to have known misleading - issue whether knew - aged 65 years - investing public knowingly misled.
LEGISLATION CITED:	Corporations Act 2001 (Cth) Crimes Act 1914 (Cth)
CASES CITED:	Shepherd v The Queen (1990) 170 CLR 573 De Simoni v The Queen (1981) 147 CLR 383 R v Williams [2005] NSWSC 315 Weininger v The Queen (2003) 212 CLR 629 R v El Rashid (unreported, NSW CCA, 7.4.95) Siganto v The Queen (1998) 194 CLR 656 Cameron v The Queen (2002) 209 CLR 339 R v Thomson & Houlton (2000) 49 NSWLR 383 R v Sharma (2002) 130 A Crim R 238 R v Atholwood (1999) 109 A Crim R 465 R v Maslen & Shaw (1995) 79 A Crim R 199 R v Hinton (2002) 134 A Crim R 286 R v Todd (1982) 2 NSWLR 517 R v Wright [1980] VR 593 R v Goward (unreported, NSW CCA 16.10.98) R v Thompson [2003] VSCA 164 R v Williams (2005) 53 ACSR 534 R v Adler (2005) 53 ACSR 471 R v Cassidy [2005] NSWSC 410 R v Pantano (1990) 49 A Crim R 328
PARTIES:	Regina John Barrie Loiterton
FILE NUMBER(S):	SC 2003/134
COUNSEL:	P W Neil SC (Crown) M Ierace SC (Offender)
SOLICITORS:	Ms K Marinos - Cth DPP (Crown) K Worthington (Offender)