Van Reesema v Flavel

[1992] HCATrans 144

~ ~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A7 of 1992

B e t w e e n -

ERNST VAN REESEMA

Applicant

and

KEVIN GEORGE FLAVEL

Respondent

Application for special

leave to appeal

MASON CJ
BRENNAN J

McHUGH J

Van Reesema 1 8/5/92

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 8 MAY 1992, AT 10.25 AM

Copyright in the High Court of Australia

MR D.M.J. BENNETT, OC:  May it please the Court, I appear

for the applicant with my learned friend,

MRS M.E. SHAW. (instructed by Mellor Olsson)

MR M. ROZENES, QC:  May it please the Court, I appear with

my learned friend, MR s. VORREITER, for the

respondent. (instructed by the Director of Public

Prosecutions (Commonwealth))

MASON CJ:	Mr Bennett.
MR BENNETT:	Your Honours, we have an outline of submissions

and some documents attached to it which I may refer

to briefly. The size ought not to deter

Your Honours, I will be referring to very little of

it.

MASON CJ: Thank you. This volume is larger than the

application book.

MR BENNETT:  Yes, I apologize for that, Your Honour. The

submissions are the first five pages, Your Honours.

MASON CJ:  Mr Bennett, the reference in paragraph 1 of your

outline to the uncontested evidence of the

applicant, was that evidence given in relation to

penalty or was it given in relation to the offence

itself?

MR BENNETT:  In relation to penalty, Your Honour, after the

incident concerning the disputed plea of not

guilty.

MASON CJ:	And after conviction?
MR BENNETT:	Yes, Your Honour. Mr Justice O'Loughlin dealt

with the issue of the plea of guilty on the basis

that he did not have to deal with it because he

simply looked at the facts, including the evidence,

and formed a view of whether that demonstrated

guilt or not. That approach having been taken, the question of the plea of guilty did not arise before

him.

The Full Court regarded that as a matter into

which it would not go. We do not suggest any

special leave point arises out of the plea of

guilty, but the existence of the evidence and the
existence of the way it was dealt with in the

courts below enables the case to be conveniently

decided on the issue as to whether the facts gave

rise to the necessary elements.

BRENNAN J:  When a plea of guilty is entered and accepted,

what is the justification for setting it aside?

Van Reesema	8/5/92
MR BENNETT:	Your Honour, the evidence of the applicant is

that he did not intend to plead guilty; that he

started a statement beginning with the words, "I

plead guilty to not keeping a cash book". He was

then interrupted and told, "Well, I treat that as a

plea of guilty" .

BRENNAN J:  But that view was rejected by the Full Court as

a matter of fact.

MR BENNETT:  Your Honour, the Full Court took the view that

it would be inappropriate - - -

BRENNAN J: At page 39, line 22:

this Court cannot act upon that version of

events.

MR BENNETT: Yes. But, Your Honour, even the Full Court, in

taking that view, accepted that it was still

necessary to look at the facts and see if the facts

established a matter giving rise to guilt or not.

And, Your Honour, may I just say this: if

paragraph 1 is taken out of my submissions, it does

not really make a great deal of difference to the

overall submissions. My submissions do not depend

on the taking into account of the evidence given at

the later stage.

We would say that if that evidence shows that

he is not guilty, at that point the matter should

because we will be submitting that on the evidence which was before the court primarily, quite apart

have been reopened or reconsidered in some way.

from the applicant's own evidence, it was quite

clear that mens rea was not demonstrated.

May I just show Your Honour why that is so?

The test applied by the Chief Justice in relation

to mens rea appears at page 46 of the application

book.	Your Honours see the long paragraph on that
page:

A further argument advanced ..... was that

there was no evidence to support a finding

that the appellant was knowingly concerned -

there is then a discussion of the sections.

The present point can be disposed of, however, without deciding that question. There was ample evidence of knowledge on the part of the

appellant. Conversations with the liquidator

were conducted upon the basis that he was

fully conversant with the affairs of the

company and responsible for its conduct. He

Van Reesema 3 8/5/92

made it clear that the books were not kept

because he considered that it was unnecessary

to keep them.

So, the Chief Justice has treated the question

of mens rea as being co-extensive with, "Did he
know the books were not being kept?" That, of
course, is not - we would submit, is the mens rea

issue.

BRENNAN J: But there was evidence that they ought to be

kept.

MR BENNETT: But, Your Honour, what was missing was evidence

as to his belief.

BRENNAN J:  Or the reasonableness of it?

MR BENNETT:  Yes, Your Honour. We submit that mens rea is

an element of this offence. If it is shown that a

person believes and reasonably believes that the

books he is keeping comply with the statutory

standard, or the matters he is attending to comply with the statutory standard, then, we submit, that

is a case where there is no mens rea. That is the

special leave question: how one applies mens rea to
that intermediate degree of question which is, we
say, a question of fact - perhaps a question of
expert fact, but a question of fact - and where a

statute lays down a standard, we submit that the

mens rea one must have if mens rea is to be there

is not merely as to the objective facts surrounding
the event but also as to the breach of that

standard, that being a question of fact. That is,

Your Honour, we submit, an important issue.

It is referred to indirectly in a number of cases I have mentioned in the submissions in

paragraph 6. In Sheppard's case, the House of

Lords held that where parents were charged with

wilful neglect of a child resulting in the child's

death and the parents did things or failed to do things where objectively things should have been done, they were not guilty where it was shown that

they were of low intelligence and did not

appreciate the seriousness of the child's condition

and the need for medical care and nourishment and

so.

BRENNAN J:  And did that case turn on the meaning of the

word "wilful"?

MR BENNETT:  Your Honour, it was a case where the word

"wilful" was there but, in my respectful

submission, the principle is of general

application.

Van Reesema 8/5/92

Where one has to establish mens rea, whether as a result of the word "wilful" or a result of the

word "knowingly concerned" or a result simply of

the need for mens rea, one must show that the

accused was aware that there was a breach of the

standard.

BRENNAN J:  But is your argument this, Mr Bennett, that if

the accused is shown knowingly to have done the

acts or made the omissions which constitute the

actus reus, then if he thought that it was all

right not to do the thing in question, then that is

sufficient?

MR BENNETT:  No, Your Honour. It depends why he thinks it

is not right. If he thinks it is not right because

of a misconstruction of the statutory provision or

because of ignorance of the statutory provision,

that is error of law and it is on one side of the

line. But if it is because he believes that his

conduct satisfies the technical standard laid down

by the Act, then it is on the other side of the

line. If one can apply it to a drug case, to the
everyday situation, a person who knows he has a

substance in his possession but believes that that substance is harmless is not guilty of the offence

if mens rea is an element.

Now, in most of the drug cases that question

has not arisen because the cases have gone off on

the issue of whether one can presume that knowledge

from the objective facts. But that must be an

element and, in my respectful submission, that is

an important issue. The judgment below is in error

because the Chief Justice treats the mens rea as

relating only to the question of what books are

kept.

Your Honours, the second question assumes,

contrary to the way the first question is put, that

me a moment ago by implication and treats the	one accepts what Your Honour Justice Brennan put to	standard substantially as a matter of law. If one
does that then one gets the question of what books
must be kept. Now, the evidence in this case was
that there were a very limited set of transactions.
They are described by the Chief Justice in his
judgment, beginning on page 41. We are only
concerned, Your Honours, with a period of
17 months. The applicant became a director in
November 1983, and the company went into liquidation a few days after 30 June 1985. So,
there is a year and a half or a bit over a year and a half - although the company had been incorporated
many years before he became a director.

Van Reesema 8/5/92

The transactions were - there was $3 initial

shares and the liquidator's evidence was that he

made no complaint about that, in cross-examination.

Transactions 2 and 3 are a purchase of land for another company in the group with a deed of trust, the money being paid by the other company, and a lease back with some rent being debited; a very

simple and short transactions. There are some pine

seedlings purchased and planted on land and there
is a transaction involving the purchase of an army
hut and an application for permission to erect it,

and it was the council's costs in relation to that

which were the debt.

Really, that is it. The journal and ledger

which were produced by the applicant to the

liquidator, and prepared after the winding up,

appear in the volume I have handed up to

Your Honours beneath the first green tab. The

whole of the journal is pages 26 to 28, and Your

Honours will see item 1 is the $3 in the unissued

capital. Items 2 and 8 are the rent; items 3 and 4

are the land. There is a few minor payments

relating to them in 5, 6 and 7 and, 9 and 10 are

the consequential end-of-year balancing
transactions. That is all it was. Clearly, the

primary records which were kept, the minutes and

source documents and documents recording the leases

and the receipts and so on - - -

McHUGH J: But just take journal entry 2 - in folio 2,

"Rent, $4200".	Now, surely that does not comply
with the statutory provision?	You have a sum, you

have no date and yet those rental payments were

over a 14-month period, were they not?

MR BENNETT:  Yes, Your Honour. They were made by another

company in the group on behalf of the company,

hence there is a crediting of the other company and

a debiting of rent.

McHUGH J: That may be the case but the fact is that it

should truly record the company's business so that

one would want to know what the position of the
company was at any month or the end of the year,
one should have had the individual liabilities and

payments segregated.

MR BENNETT:  Your Honour, it is my submission that where

there are a few simple transactions which are amply

demonstrated by the cheque butts or whatever the

necessary entry to effectuate the transaction is,

there is no reason why one cannot make these

entries at the end of the year.

The view taken by the Full Court was that it

is too late to make them after the liquidation,

Van Reesema 6 8/5/92

although the evidence of the liquidator was that it

was common, in relation to a company of this type,

and acceptable for it to write up its books at the

end of the year. I have given Your Honours a

number of pages where that is said, beneath the

first red tab, and a few references to it. What is

said is that the failure to keep running books of

account in relation to these entries constitutes a

breach.

Now, Your Honour, the Act does not require

books; it requires accounting records, and

accounting records are defined by section 5 - this

is page 43 of the application book - as including:

a range of source materials being "invoices,

receipts, orders for the payment of money,

bills of exchange, cheques, promissory notes,

vouchers and other documents of prime entry

and ..... working documents" -

and so on.

McHUGH J:  But that extends the definition, in one sense.

Accounting records must surely cover the books of

entry such as journals, cash books and ledgers.

MR BENNETT:  Your Honour, we would respectfully submit that

the section does not go so far.

McHUGH J: It has got to explain the transactions of the

company and the financial position of the company.

Look at the journal that has been written up in

this case for the year ended 30 June 1985. If you

wanted to ascertain the financial position of this

company at any time during that period, you would

not be able to do so during that 12-month period.

You would not be able to do so because you have a

global figure for rent of $4200. For a start, it

does not tell you when it was received or when the

liability was incurred. It tells you nothing.

MR BENNETT:  No, Your Honour. But one does not need the

book to show that. One can get that from the

lease, from the cheque butts. It is not as if

there are thousands of transactions or hundreds of

transactions. This is a company which has just

engaged in one or two very simple transactions with

associated companies.

McHUGH J: Yes, but that is the whole point, is it not, that

there must be accounting records which correctly

explain the transactions and the financial position

of the company, and those accounting records must

be kept in such a manner as will enable true and

fair accounts of the company to be prepared from

time to time?

Van Reesema 7 8/5/92

MR BENNETT:  Your Honour, the evidence was that one does not

need to do that until the end of the year. At the

end of the year there was a liquidation within a

few days. So, the occasion had not arisen for the

detailed books to be written up, on the evidence

which was put by the prosecution against us. There

is a reference to a rental payment record book too.

There was an exhibit being the rental payment

record book which was exhibit P7 which is not

referred to in the judgment. It is at page 27 of

the transcript.

So, Your Honour, in my submission, section 267

lays down a standard which is not absolute. It

does not say, "You must keep a cash book, a

creditor's journal, a journal, a ledger" and so on.

What it says is, "You must keep records which

satisfy two tests. They must enable the accounts

to be conveniently and properly audited and they must correctly record and explain." It does not

say when they have got to be kept.

BRENNAN J: Well, why does it not operate from moment to

moment?

MR BENNETT: Well, Your Honour, there would be a lot of

criminals in Australia running small companies if

that standard were - - -

BRENNAN J: That may well be so, Mr Bennett.

MR BENNETT: But, Your Honour, in my respectful submission,

the section has to be construed in the light of

accounting practice and commercial practice and in

the light of commercial reality. The obligation, I

would submit, is not one from moment to moment but

to keep such records as enable these steps to be

taken and which are considered reasonable and

normal in the accounting profession.

The evidence was there would be no difficulty

preparing a ledger from these records - the

liquidator admitted that - and that in the normal

course it would not be done until the end of the

year, and the transactions were simplicity itself

and covered, as Your Honours have seen, a very

short space of paper.

BRENNAN J:  Does that mean that an offence is not committed

on 30 June but is committed on 1 July?

MR BENNETT: No, Your Honour, it is a reasonable time. It

is a requirement of reasonability. Reasonableness

goes into it.

BRENNAN J: And, what, depends on questions of fact as to

the busyness of the accountant?

Van Reesema 8 8/5/92

MR BENNETT:  It depends on the question of fact as to what

is a reasonable time for them to be prepared after

30 June. But, Your Honour, where there were only a

very small number of transactions, there is, in my

respectful submission, under these sections, no

obligation to keep the running book from day to day so every time a transaction occurs it is entered in

a book and kept up.

BRENNAN J: Did I understand you to say that the

transactions with respect to rent involved

movements of funds as between two members of a

group?

MR BENNETT:  Yes, Your Honour, and there was a rent book and

there were cheque butts, mattes of that sort. The

payments were made by another company on behalf of

this company because the land was held on trust and

there was a lease back and so on, and that was all

documented. So, it is not as if one has a

situation where someone is within a group failing

to record things so that he can later invent what

occurred. That is not suggested. There are
records and the records are in the form of the

primary documents: the leases, the rent receipt

books and so on. But what has not been done is to
keep something which has the magic name, "cash

book, ledger, journal" and so on.

BRENNAN J:  I must say it comes as a surprise to me,

Mr Bennett, to think that on a question of mens rea

that evidence which is given on a subject of

penalty concerning transactions of this kind could
possibly be regarded as a satisfactory foundation

for examining the correctness of the conviction.

MR BENNETT:  Your Honour, one does not need to go to that

evidence.	One can go merely to the evidence of the
liquidator.

BRENNAN J: But there was a plea, was there not?
MR BENNETT:	No, Your Honour. After a case to answer was

found.	The evidence of the liquidator was given
first.	The proceedings went before the magistrate
as contested proceedings.	The liquidator was

examined and cross-examined, as were two other

persons. There was then a submission of "no case",
and the incident involving the plea occurred after

the magistrate had rejected the "no case"

submission.

BRENNAN J:  Be it so, there was a plea.

MR BENNETT: Well, Your Honour, one of the matters we would

wish to argue, although it is not a special leave

point, is that (a), the plea should not have been

Van Reesema 8/5/92

accepted, that the decision that there was no case

was wrong and, alternatively, that in any event the

course taken by the lower court was a convenient
course bearing in mind the dispute about the nature

of the plea.

Certainly, the trial judge did not reject the material about the plea. He simply said, "Well, it

is not necessary for me to decide it because

looking at the evidence, including his evidence, I

am satisfied there was an offence." So,

Your Honours, in my respectful submission, the case

involves that question in addition to the first
question. It is a question on which there is very

little helpful authority. There is the two early

cases in Western Australia in the 70s to which I

have referred.

McHUGH J: But they are on books of account, are they not?

MR BENNETT:  Yes, they are on a different question. The

question we have formulated on page 5 is, in my

submission, an important question and, indeed, the

debate which has taken place this morning

illustrates that.

McHUGH J:  Mr Bennett, really, it would not improve

Australia's corporate image if we allowed an appeal

in this case and held that this was a proper
standard for recording the financial transactions

of a company.

MR BENNETT:	Your Honour, may I take even a simpler example? Suppose one has a company which receives its $2 in
cash when it is incorporated, opens a bank account
and has no other transactions during the year and no books are opened, and there is a receipt for the
$2 in a receipt book, there is a bank deposit slip
showing it has been deposited and two share
certificates have been issued. So, there is no
doubt about the transaction. But no books are kept
and nothing is entered.  And it is a transaction
which, no doubt, ultimately, if proper accounts are
kept, should be entered in a book.  Can one
seriously suggest that if the company goes into
liquidation on 7 July after a year of existence
that the directors are in breach because they have
not solemnly opened a book and made all the entries on both sides of the ledger to record that $2 and
posted it through the journal to the right ledger
account?
McHUGH J:	I would have thought that they should have at

least opened a general journal entry.

MR BENNETT:  Your Honour, it is my submission that is not

what the section requires. The question is has the

Van Reesema 10 8/5/92

company kept such accounts and records which would

include the receipt book, the share certificate and
so on, the bank deposit book, which record and
explain the transactions - those records clearly

record and explain it - and the financial position

and keep its accounting records in a manner that

will enable the accounts to be conveniently and

properly audited. And there is no difficulty

auditing that and saying exactly what the company

has done and what has occurred.

That question, Your Honour, in my submission,

is an important one to thousands of very small

companies throughout Australia which engage in only

one or two transactions during a year as to what their obligations are, whether those obligations

arise from day to day or whether it is sufficient

to write up the books once a year, which no doubt most people do in very small companies, and in my

respectful submission -

McHUGH J:  Obviously, you cannot write them up every day. I

mean, take BHP itself:  I would assume accounts may

be prepared on a monthly basis or weekly basis.

MR BENNETT:  That is an example at the other end of the

spectrum. That is a situation where the

transactions are so voluminous that one has to work

out a method of handling them. But, Your Honour,

the question of principle here is how does one
adapt the words of these sections to a very simple,

very short set of transactions of the type which

can quite easily be written up at the end of the

year without creating opportunity for fraud because

books have not been created and where one can, by

looking at the primary documents, quite easily see

the company's position? In my respectful

submission, that is an important question and it is

squarely raised by this case.	May it please the
Court.

MASON CJ: Yes, thank you, Mr Bennett. We need not trouble

you, Mr Rosenes.

The Court is not persuaded that the decision

of the Full Court of the Supreme Court is attended

with sufficient doubt to justify the grant of

special leave to appeal.	The application is
therefore refused.

MR ROZENES:  I make an application for costs, may it please

the Court.

MASON CJ:	Yes.	Do you say anything about that, Mr Bennett?
Van Reesema	11	8/5/92

MR BENNETT: There is nothing I can say, Your Honour.

MASON CJ:  The application is refused with costs.

AT 10.51 AM THE MATTER WAS ADJOURNED SINE DIE

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