Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121 (7 December 1988)

HIGH COURT OF AUSTRALIA

HAMILTON v. WHITEHEAD [1988] HCA 65; (1988) 166 CLR 121

F.C. 88/061

Companies

High Court of Australia

Mason C.J.(1), Wilson(1) and Toohey(1) JJ.

CATCHWORDS

Companies - Offence - Accessory - Knowing concern in commission of offence - Company offering or issuing prescribed interest to public - All actions comprising offence carried out by managing director - Whether he was knowingly concerned in commission of offence - Companies (Western Australia) Code, s. 169, - Companies and Securities (Interpretation and Miscellaneous Provisions) (Western Australia) Code, s. 38(1).

HEARING

1988, October 28; December 7. 7:12:1988

APPEAL from the Supreme Court of Western Australia.

DECISION

MASON C.J., WILSON AND TOOHEY JJ. The applicant seeks special leave to appeal from the decision of a single Judge (Franklyn J.) of the Supreme Court of Western Australia whereby his Honour, inter alia, discharged four orders to review granted in accordance with s.197 of the Justices Act 1902 (W.A.). There is no appeal to the Full Court of the Supreme Court from any determination of a single Judge made on the return of any order to review: Justices Act, s.206A.

2. The applicant was the complainant in proceedings instituted in the Court of Petty Sessions at Perth against Establish Pty Ltd ("the company"), of which the respondent was the managing director, and against the respondent. The company was charged with six offences under ss.169 and 174 of the Companies (Western Australia) Code ("the Code"), namely, that, not being a company within s.164 nor an authorized agent of such a company, it offered or issued to the public a prescribed interest in the Class European Restoration Syndicate Trust. The respondent was charged on six counts of being knowingly concerned in the commission of the offences alleged against the company, each count relying on s.169 of the Code and s.38(1) of the Companies and Securities (Interpretation and Miscellaneous Provisions) (Western Australia) Code ("the Interpretation Code").

3. The learned magistrate dismissed all twelve charges because he was not satisfied that the offers or issues in question were made to the public or a section of the public (see the Code, s.5(4)) and therefore that element of the offence had not been established. This was the sole ground of appeal in the proceedings before Franklyn J. In four of the six charges against the company, his Honour allowed the appeal and made absolute the orders to review. The remaining charges against the company were founded on somewhat different facts and the orders to review in respect of them were discharged.

4. The outcome of the appeals with respect to the respondent was different. It was not in dispute that, in respect of the charges of which his Honour had found the company to be guilty, the respondent had contacted each of the persons named as the recipient of an offer or issue of a prescribed interest. The contact had been established in consequence of an advertisement, placed by the respondent in a daily newspaper published in Western Australia, reading as follows:

"BMW, Merc, Porsche, Restoration Business.

Partners wanted (silent or active). 448.7634."

respect of the four charges against the respondent corresponding to the four charges which his Honour found proved against the company appears succinctly in the following passage of his reasons for judgment:

"Before his Worship the prosecution case against

Establish was that the actions of Whitehead were

the actions of Establish, he being its managing

director, the prosecution relying on Bolton

Engineering v. Graham (1956) 3 All ER 624 and

clearly on the oft quoted dictum of Denning L.J. at

p 630. Thus it relied on the acts and decisions of

Whitehead as 'the directing mind and will of the

company' as being the acts and decisions of

Establish. It appears to me clearly wrong and

oppressive to then prosecute Whitehead personally

for the identical acts and decisions as were relied

on as the acts of the company. I am not prepared

to interfere with his Worship's findings dismissing

the charges laid against Whitehead."

5. It should be mentioned that having regard to the sole issue that was agitated on the appeal to Franklyn J., his Honour did not have the benefit of argument from counsel on the point canvassed in this part of his reasons. It now forms the sole ground of appeal for which special leave is sought. Counsel were invited to argue the application for special leave as if it were the appeal, so as to enable the Court, in the event that it considered that special leave should be granted, to dispose of the matter without further hearing should it consider that to be a convenient course.

6. The applicant relies on s.38(1) of the Interpretation Code, which reads as follows:

"A person who aids, abets, counsels or procures, or

by act or omission is in any way directly or

indirectly knowingly concerned in or party to, the

commission of an offence against any relevant Code

shall be deemed to have committed that offence and

is punishable accordingly."

The provision is indistinguishable in effect from the general accessory provision contained in s.5 of the Crimes Act 1914 (Cth).

7. In Mallan v. Lee [1949] HCA 48; (1949) 80 CLR 198, a complaint was laid in a court of summary jurisdiction against a limited company and Mallan, its public officer. The company was charged with having contravened s.230 of the Income Tax Assesment Act 1936 (Cth) in that Mallan, as its public officer, had knowingly and wilfully understated, in the company's income tax return, the amount of the company's income for the relevant year. Mallan was charged on the basis that he was directly knowingly concerned in the commission of the offence of the company and reference was made to s.5 of the Crimes Act. Section 230(1) of the Income Tax Assessment Act provided:

"Any person who, or any company on whose behalf the

public officer, or a director, servant or agent of

the company, in any return knowingly and wilfully

understates the amount of any income or makes any

misstatement affecting the liability of any person

to tax or the amount of tax shall be guilty of an

offence."

The Court held that the complaint against Mallan wrongly relied on s.5 of the Crimes Act for the reason that s.230 made him directly liable as a principal for the offence of knowing and wilful understatement of the amount of any income in a return. The offence of the company consisted only in its vicarious responsibility for the act of Mallan undertaken on its behalf. After construing the section in this way, Dixon J. continued, at pp 215-216:

"On the interpretation I have given to

s.230(1), for more than one reason s.5 of the

Crimes Act cannot apply to a public officer so as

to make him an accessory to the offence of the

company. In the first place, the public officer's

act on behalf of the company making it an offender

ipso facto amounts to a substantive offence on his

part under s.230(1). In the second place, the

sub-section makes him the actor, the principal, for

whose guilty conduct the company is responsible

vicariously. It would be an inversion of the

conceptions on which the degrees of offending are

founded to make the person actually committing the

forbidden acts an accessory to the offence

consisting in the vicarious responsibility for his

acts."

8. We have referred to Mallan v. Lee at some length because it formed the basis of the argument advanced for the respondent. The case is instructive because it underlines the importance attaching to a characterisation of the respective liabilities that rest upon a company and its officers.

9. So far as material, ss.169 and 174 of the Code read as follows:

"169. A person ... shall not issue to the

public, offer to the public for subscription or

purchase, or invite the public to subscribe for or

purchase, any prescribed interest.

...

174.(1) A person shall not

(a) contravene or fail to comply with a

provision of section 169 ...".

The word "person" includes a company: the Interpretation Code, s.9.

10. In contrast to the statutory provision under consideration in Mallan v. Lee, s.169 of the Code speaks directly to the company. It is not a case of a company being made liable for an act performed by a servant of the company on its behalf. The liability imposed is direct, not vicarious. The distinction was drawn by Viscount Haldane LC. in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. (1915) AC 705, at p 713. Its significance is explained by Lord Reid in Tesco Supermarkets Ltd. v. Nattrass [1971] UKHL 1; (1972) AC 153, at p 170:

"I must start by considering the nature of the

personality which by a fiction the law attributes

to a corporation. A living person has a mind which

can have knowledge or intention or be negligent and

he has hands to carry out his intentions. A

corporation has none of these: it must act through

living persons, though not always one or the same

person. Then the person who acts is not speaking

or acting for the company. He is acting as the

company and his mind which directs his acts is the

mind of the company. There is no question of the

company being vicariously liable. He is not acting

as a servant, representative, agent or delegate.

He is an embodiment of the company or, one could

say, he hears and speaks through the persona of the

company, within his appropriate sphere, and his

mind is the mind of the company. If it is a guilty

mind then that guilt is the guilt of the company.

It must be a question of law whether, once the

facts have been ascertained, a person in doing

particular things is to be regarded as the company

or merely as the company's servant or agent. In

that case any liability of the company can only be

a statutory or vicarious liability."

See also the statement of Denning L.J. in H.L. Bolton (Engineering) Co. Ltd. v. T.J. Graham & Sons Ltd. (1957) 1 QB 159, at p 172.

11. There can be no doubt, on the facts of the present case, that the respondent, in placing the advertisement and in dealing with those who replied to it, was the company. He was its managing director and his mind was the mind of the company. The company therefore was liable as a principal for the breaches of s.169 of the Code. The liability was direct, not vicarious.

12. It is against this background that the liability of the respondent falls to be considered. As we have said, the applicant relies upon s.38(1) of the Interpretation Code, the terms of which have been set out. Since the respondent was the actor in the conduct constituting the offences and had knowledge of all the material circumstances, it must follow, according to the applicant, that the respondent was "knowingly concerned" in the commission of the offences committed by the company.

13. In our opinion, the submission is plainly right. Counsel for the respondent sought to gain some comfort from the words of Dixon J. in Mallan v. Lee. But, as we have sought to explain, the inversion of which his Honour spoke has no application here. The company is not vicariously liable for the actions of the respondent. The company is the principal offender and the respondent is charged as an accessory. Franklyn J. thought that it was "wrong and oppressive" to prosecute the respondent for the identical acts and decisions as were relied on as the acts of the company. There is nothing conceptually wrong in such a course since "it is a logical consequence of the decision in Salomon's case (1897) AC 22 that one person may function in dual capacities": Lee v. Lee's Air Farming Ltd. (1961) AC 12, at p 26. In The Queen v. Goodall (1975) 11 SASR 94, Bray C.J. discussed what his Honour described as:

"... some sort of metaphysical bifurcation or

duplication of one act by one man so that it is in

law both the act of the company and the separate

act of himself as an individual" (at p 100)

and expressed his conclusion as follows (at p 101):

"... my view is that the logical consequence of

Salomon's Case ... is that the company, being a

legal entity apart from its members, is also a

legal person apart from the legal personality of

the individual controller of the company, and that

he in his personal capacity can aid and abet what

the company speaking through his mouth or acting

through his hand may have done."

We agree with this view.

14. Counsel for the respondent argued that s.38 of the Interpretation Code should be read down so as to apply only to servants or officers of a company acting on behalf of a company, thereby excluding those whose actions were themselves the actions of the company. However, the words of the section are crystal clear and there is no warrant for reading them down. Indeed, the fundamental purpose of the companies and securities legislation - to ensure the protection of the public - would be seriously undermined if the hands and brains of a company were not answerable personally for breaches of the Code which they themselves have perpetrated. Section 38 plays a vital role in the whole scheme of the legislation and the legislative intention is plainly expressed in its words.

15. There is one other matter that requires to be mentioned. In Yorke v. Lucas [1985] HCA 65; (1984) 158 CLR 661, Mason A.C.J., Wilson, Deane and Dawson JJ., in a joint judgment, made a passing reference to Mallan v. Lee. Yorke and another purchased a business in respect of which they claimed that the average weekly turnover and the gross profit of the business had been misrepresented. They succeeded in a claim in the Federal Court for damages under s.82 of the Trade Practices Act 1974 (Cth) against several parties involved in the sale, but failed in the claim against the managing director (Lucas) of the company that acted on behalf of the vendor for the reason that he was insufficiently aware of the facts to be "involved in the contravention" within the meaning of ss.75B and 82 of the Act. The sole issue that required the consideration of this Court was the question whether it was necessary in order for a person to be involved in a contravention that the person have knowledge of the essential matters that make up the contravention. The Court answered that question in the affirmative. At the conclusion of the joint judgment, their Honours said, at p 671:

"We would only add, lest it be thought that it has

escaped our attention, that the appellants may,

even if knowledge were not necessary to involvement

under par.(a) or under par.(c) (i.e., of s.75B(1))

as 'party to', have encountered difficulty in

establishing that Lucas was involved within the

meaning of s.75B in the contravention constituted

by the making of the false representations, having

regard to the fact that the representations, albeit

made on behalf of the Lucas company, were made by

Lucas himself. As Dixon J. observed in Mallan v.

Lee, at p 216:

'It would be an inversion of the conceptions

on which the degrees of offending are founded

to make the person actually committing the

forbidden acts an accessory to the offence

consisting in the vicarious responsibility for

his acts.'

It is, however, unnecessary to pursue this aspect

of the matter further."

It would seem to us, with respect, that this reservation, made no doubt out of an abundance of caution, was unnecessary. The provisions of the Trade Practices Act, like the Code in the present case but unlike s.230 of the Income Tax Assessment Act, were such that the alleged accessory was indeed a true accessory since the offence committed by the company was not the consequence of a vicarious liability for the actions of its servants carried out on its behalf. It was the consequence of actions undertaken directly by it, that is to say by a person who was the embodiment of the company.

16. In our opinion, for the reasons we have given, the respondent should have been convicted. The dismissal of the charges against him was confirmed by Franklyn J. because, without the benefit of argument from the parties, his Honour failed to have regard to s.38(1) of the Interpretation Code. As we have said, the operation of s.38(1) is of great importance in the enforcement of the legislative scheme. We would therefore grant special leave to appeal, allow the appeal, set aside the orders made by Franklyn J. and remit the matter to the Supreme Court of Western Australia for the necessary orders to be made in accordance with this judgment. The applicant does not seek an order for the costs of the appeal to this Court.

ORDER

Application for special leave to appeal granted.

Appeal allowed.

Set aside the orders of the Supreme Court of Western Australia dated 19 July 1988 in Matters Nos. 1275, 1276, 1277 and 1279, all of 1987.

Remit the matter to the Supreme Court for the necessary orders to be made in accordance with the judgment of this Court.