Spies v R

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Gaudron,McHugh,Gummow,Hayne JJ,Callinan J
• Judgment Date: 03 August 2000
• Neutral Citation: [2000] HCA 43,2000-0803 HCA E
• Docket Number: S263/1999
• Date: 03 August 2000

[2000] HCA 43

HIGH COURT OF AUSTRALIA

Gaudron, Mchugh, Gummow, Hayne and Callinan JJ

S263/1999

Peter Mannery Spies

Appellant

and

The Queen

Respondent

Representation:

P Menzies QC with C J Bevan for the appellant (instructed by Clinch Neville Long)

P Roberts SC with M A Wigney for the respondent (instructed by Director of Public Prosecutions)

Companies (New South Wales) Code, s 229(4). Crimes Act 1900 (NSW), s 176A.

Criminal Appeal Act 1912 (NSW), s 7(2).

Peter Mannery Spies v The Queen

Criminal law — Director charged with defrauding creditors of the company — Alternative charge of improper use of position as director — Conviction on first charge by jury — Conviction set aside by Court of Criminal Appeal — What facts the jury must have been satisfied of from their finding of guilt with respect to the first charge — Whether Court of Criminal Appeal had power to substitute conviction on the alternative charge in the circumstances.

Criminal law — Construction of provision conferring power on the Court of Criminal Appeal to substitute a verdict of guilty of an offence different from the offence which the jury convicted of — Standard of proof required to apply the provision.

Criminal law — Director charged with defrauding creditors of the company — Direction to the jury equated director's intention to hinder or delay the creditors with defrauding — Misdirection.

Criminal law — Elements of offence of defrauding.

Company law — Whether directors by reason of their position owe an independent duty to and enforceable by the creditors.

Words and phrases — ‘jury must have been satisfied of facts which proved the appellant guilty of other offence’, ‘to defraud’, ‘defrauding’.

ORDER

1. Appeal allowed.

2. Set aside the orders of the Court of Criminal Appeal dated 17 September 1998.

3. In lieu thereof order that:

(a) the appellant's appeal to that Court be allowed;

(b) the appellant's conviction under s 176A of the Crimes Act 1900 (NSW) be set aside and direct that a judgment and verdict of acquittal be entered in respect of that charge; and

(c) there be a new trial of the appellant on the charge under s 229(4) of the Companies (New South Wales) Code.

1 Gaudron, McHugh, Gummow and Hayne JJ. The question in this appeal is whether the Court of Criminal Appeal of New South Wales (Spigelman CJ, Sully and Hidden JJ) 1 erred in exercising its powers under s 7(2) of the Criminal Appeal Act 1912 (NSW) to convict the appellant of an offence against s 229(4) of the Companies (New South Wales) Code (‘the Companies Code’) after holding that a conviction for an offence against s 176A of the Crimes Act 1900 (NSW) should be set aside.

2 Section 7(2) of the Criminal Appeal Act provides 2:

‘Where an appellant has been convicted of an offence, and the jury could on the indictment have found the appellant guilty of some other offence, and on the finding of the jury it appears to the court that the jury must have been satisfied of facts which proved the appellant guilty of that other offence, the court may, instead of allowing or dismissing the appeal, substitute for the verdict found by the jury a verdict of guilty of that other offence, and pass such sentence in substitution for the sentence passed at the trial as may be warranted in law for that other offence, not being a sentence of greater severity.’

3 The appellant's appeal to the Court of Criminal Appeal arose out of a trial by jury before Judge Armitage of an indictment containing charges under s 176A of the Crimes Act and s 229(4) of the Companies Code. In respect of the s 176A charge, the indictment dated 24 September 1997 charged that the appellant ‘[b]etween about 17 October 1989 and 9 May 1990 … being a director of a body corporate, namely Sterling Nicholas Duty Free Pty Ltd (“the Body Corporate”) [“Sterling Nicholas”], defrauded persons, being the creditors of the Body Corporate, in their dealings with the Body Corporate, by causing the Body Corporate to purchase his shares in Sterling Nicholas Holdings Pty Ltd [“Holdings”] for $500,000.’ The jury convicted the appellant of this charge. However, the Court of Criminal Appeal set aside the conviction.

4 As an alternative to the charge under s 176A of the Crimes Act, the indictment also charged that the appellant ‘[b]etween about 17 October 1989 and

9 May 1990 … being an officer of a corporation, namely [Sterling Nicholas] (“the Corporation”), made improper use of his position to gain directly an advantage for himself by causing the Corporation to purchase his shares in [Holdings] for $500,000 which sum he caused to be credited to his loan account with the Corporation.’ That charge was laid under s 229(4) of the Companies Code 3. Because the charge was laid as an alternative charge to the s 176A charge, no verdict was taken in respect of the s 229(4) charge.

5 Instead of ordering a new trial of both charges, the Court of Criminal Appeal exercised its powers under s 7(2) of the Criminal Appeal Act and entered a conviction in respect of the s 229(4) charge.

6 In our opinion, the Court of Criminal Appeal erred in entering a conviction in respect of the s 229(4) charge because it was not open to the Court to hold ‘that the jury must have been satisfied of facts which proved the appellant guilty of’ the s 229(4) offence.

The factual background

7 The appellant was one of two directors of Sterling Nicholas. He held 33,750 of the 50,000 issued shares. The other shares in Sterling Nicholas were held by a Mr Newton and his son. The only other director of Sterling Nicholas was a Mr McPherson, an employee of that company. Sterling Nicholas sold duty free items from a number of outlets to overseas travellers. Mr McPherson and the appellant were also directors of Holdings, a company in which the appellant owned 9,999 out of 10,000 issued shares and Mr McPherson owned the remaining share. Holdings had minimal trading activities. Its only asset was a design copyright in relation to two signet rings.

8 At all material times, Sterling Nicholas operated at a loss. For the year ended 30 June 1988 its trading loss was $230,547, and its liabilities exceeded its assets by $361,974. For the year ended 30 June 1989, its trading loss was $1,014,472, and its liabilities exceeded its assets by $1,776,446.

9 During 1989–1990, the appellant owed substantial sums of money to Sterling Nicholas. As at 22 March 1990, he had borrowed from Sterling Nicholas $176,354.80. He had also guaranteed Sterling Nicholas' bank overdraft and had given a mortgage over his home as security for the overdraft debt.

10 The appellant knew the state of the finances of Sterling Nicholas and knew that they were getting worse during the 1989–1990 trading period. He made efforts to sell its business to outsiders but he was unable to do so.

11 A minute of a meeting of directors of Sterling Nicholas, dated 17 October 1989, records a resolution that Sterling Nicholas should purchase all of the issued shares of Holdings for an amount of $500,000. Sterling Nicholas did not have the capacity to pay this sum or any sum for the Holdings shares. Nothing seems to have been done to promote the sale until 30 March 1990, when a minute of a meeting of directors of Sterling Nicholas records a resolution that Sterling Nicholas purchase the appellant's and Mr McPherson's shares in Holdings. The meeting also resolved that, because Sterling Nicholas could not pay for the purchase, an equitable charge would be granted over all of the assets of Sterling Nicholas until the appellant was paid. In addition, the appellant's loan account with Sterling Nicholas was credited with $500,000 being the purchase price of all the shares in Holdings. The result was that the appellant had sold shares in an apparently worthless company for $500,000 and had gone from a substantial debtor of Sterling Nicholas to a secured creditor of that company who was owed $323,645.20.

12 These facts were the basis of the charges against the appellant although the prosecution also relied on certain matters that occurred when the business of Sterling Nicholas was sold to a third party. For present purposes, it is unnecessary to refer to those matters although the appellant's involvement in them must have told heavily against him when the jury were considering the elements of the s 176A charge.

13 In charging the jury on the s 176A charge, the learned trial judge said 4:

‘The Crown must prove beyond reasonable doubt that the accused himself, by entering into the transaction in which his shares in [Holdings] were sold to [Sterling Nicholas], intended to defraud the creditors.

The test here is a subjective test. What is relevant is what the accused intended himself to do and that is what the Crown has to prove, that is, it has to prove that he intended to defraud those creditors.

As to this element of the offence, the Crown invites you to draw an inference from all the surrounding circumstances that the purpose of the sale of the accused's shares in [Holdings] to [Sterling Nicholas] was for no reason other than to delay or hinder creditors by making the accused, himself, a creditor rather than a debtor; and I should add not only a creditor but a secured creditor at a time when the accused well knew that the company was about to go into liquidation.’

14 The learned judge then went on to direct the jury as to the appellant's answer to these contentions of the prosecution. That answer arose out of the entry into a lease by Holdings of premises in Oxford Street, Sydney, from which Sterling Nicholas had operated its business for a number of years, first under a lease for a term of years and then by a holding over.

15 The lease of the premises by Sterling Nicholas expired in 1987. However, the lease gave Sterling Nicholas an option to renew for a further period of four years. In...