Chew v R

173 CLR 626
107 ALR 171

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(Decision by: Dawson J) Court:

Judges: Mason CJ, Brennan, Gaudron and McHugh JJ
Deane J

Dawson JToohey J

Judgment date: 3 June 1992

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Decision by:
Dawson J

This appeal concerns the proper construction of s 229(4) of the Companies (Western Australia) Code (the Companies Code). Before turning to the question which arises it is convenient to set out the relevant portions of s 229. They are as follows:

(1)

An officer of a corporation shall at all times act honestly in the exercise of his powers and the discharge of the duties of his office.

Penalty -

(a)

in a case to which paragraph (b) does not apply -- $5,000; or

(b)

where the offence was committed with intent to deceive or defraud the company, members or creditors of the company or creditors of any other person or for any other fraudulent purpose -- $20,000 or imprisonment for 5 years, or both.

(2)

An officer of a corporation shall at all times exercise a reasonable degree of care and diligence in the exercise of his powers and the discharge of his duties.

Penalty: $5,000.

(3)

An officer or employee of a corporation, or a former officer or employee of a corporation, shall not make improper use of information acquired by virtue of his position as such an officer or employee to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation.

Penalty: $20,000 or imprisonment for 5 years, or both.

(4)

An officer or employee of a corporation shall not make improper use of his position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation.

Penalty: $20,000 or imprisonment for 5 years, or both.

(5)

For the purposes of this section, 'officer', in relation to a corporation, means --

(a)

a director, secretary or executive officer of the corporation...

The question of construction is whether subs (4), in speaking of improper use of a position to gain an advantage or to cause detriment, requires proof of an intention to gain an advantage or to cause detriment or whether the words of the subsection speak merely of improper use of a position which occasions gain or detriment.

The word "to" when used by way of an infinitive to qualify a previous clause adverbially may indicate purpose. On the other hand, it may be used to indicate occasion or result. Thus, for example, the words "to gain" in s 229(4) may mean "in order to gain" or "with the purpose of gaining". Conversely, they may mean "occasioning gain" or "with the result of gaining". The difference is significant, for if the words in the subsection mean "in order to gain" or "with the purpose of gaining" and are not directed solely to a result, s 23 of the Criminal Code (WA) (assuming that it would otherwise apply) would have no application. Section 23 relevantly provides:

Unless the intention to cause a particular result is expressly declared to be an element of the offence constituted, in whole or part, by an act or omission, the result intended to be caused by an act or omission is immaterial.

Section 23 would have no application for, if s 229(4) were to be read as requiring the improper use of the position of which it speaks to be for the purpose or with the intention of gaining an advantage or causing detriment, it is clear that the subsection would expressly import an intention to cause a particular result as an element of the offence which it creates. It is therefore convenient to turn directly to the construction of s 229(4) and, in particular, to the meaning of the expressions "to gain... an advantage" and "to cause detriment", in order to see whether an intention to cause a particular result is required.

The context in which those expressions are used affords little assistance. The presence of a comma immediately before the words "to gain" may be thought to indicate that the words which follow are used disjunctively rather than conjunctively and hence to indicate result alone rather than purpose or intention. But s 229(3) which is similarly constructed omits a comma in the same place and it is clear enough that subs (4) was derived from the predecessor to subs (3). ^[F6] It can scarcely be thought that the insertion of a comma in subs (4) was intended to give a different meaning to the words "to gain... an advantage" and "to cause detriment" in subs (4). Whilst punctuation may sometimes be helpful as an aid to construction, in these circumstances it would be wrong, in my view, to allow the presence of a comma to control the meaning of the subsection.

Some assistance is, I think, to be gained by reference to s 229(1). There a higher penalty -- $20,000 or imprisonment for 5 years, or both -- is prescribed where the offence on the part of an officer of a corporation of failing to act honestly in the exercise of his powers and the discharge of the duties of his office is committed with intent to deceive or defraud. The higher penalty corresponds with the penalty prescribed for breach of s 229(4), affording some indication that the legislature had in mind a blameworthy purpose in addition to the improper use of the relevant position. There is clearly some overlap between s 229(1) and s 229(4), and an officer who has made improper use of his position without any purpose of gaining an advantage for himself or any other person or of causing detriment to the corporation may well have been guilty of failing to act honestly in the exercise of his powers or the discharge of the duties of his office so as to attract the lesser penalty prescribed by s 229(1)(a).

In the end, however, I think that the answer is provided by more general considerations. Subsections (3) and (4) raise the question of what constitutes improper use, on the one hand, of information acquired by an officer or employee of a corporation by virtue of his position and, on the other hand, of the position itself as an officer or employee of a corporation. It seems to me that an objective standard must be applied in determining what amounts to impropriety in either context. It is clear enough that a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole. Whitehouse v Carlton Hotel Pty Ltd ^[F7] is an example where the allotment of shares by a governing director was thought by him to be in the best interests of the company but was held to be for the impermissible purpose of defeating the voting power of the existing shareholders. Where a director does something by the use of his position which is for an impermissible purpose it must, I think, amount to an improper use of that position, however much he believes his actions to be in the interests of the company. ^[F8] Notwithstanding that impropriety is to be determined objectively, it has been observed, correctly I think, by Jacobs J in Grove v Flavel ^[F9] that what was improper for the purposes of the predecessor to s 229(3), s 124(2) of the uniform Companies Act 1961, "cannot be determined by reference to some common, uniform, or inflexible standard which applies equally to every person who is an officer, but rather must be determined by reference to the particular duties and responsibilities of the particular officer whose conduct is impugned". And it should also be said that, whilst impropriety is to be determined objectively, nevertheless the state of mind of the particular officer or employee may be relevant; for example, where a power may be exercised for permissible and impermissible purposes, the purpose for which it is actually exercised will clearly be relevant. ^[F10]

It would, I think, be curious if s 229(3) and (4), having regard to the high penalty provided by each subsection, required no mental element other than the voluntariness of an act which, viewed objectively, is improper. Impropriety on the part of an officer resulting in an unintended gain to himself or another or unintended detriment to the corporation would embrace such a wide range of offences attracting varying degrees of opprobrium that I am unable to conclude that the legislature intended such an effect. In my view, the proper construction of both subs (3) and subs (4) is that which requires an intention on the part of the officer or employee to gain an advantage for himself or another or to cause detriment to the corporation. It is a natural construction of those subsections which, I think, accords better with the other provisions of the section.

Subsections (3) and (4) of s 229 may be contrasted with subs (1) of s 229 which requires an officer or employee of a corporation to act honestly in the exercise of his powers and the discharge of the duties of his office. Section 124(1) of the uniform Companies Act 1961 is the forerunner of s 229(1) (although s 124(1) also included the duty to use reasonable diligence which now appears in s 229(2)). In Marchesi v Barnes ^[F11] Gowans J concluded that, in requiring a director to act honestly, s 124(1) imposed the common law obligation to act bona fide in the interests of the company,making it an offence to fail to do so. However, he expressed the view that for there to be a breach of this obligation imposed by s [0012] 124(1) there had to be "a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge". ^[F12] He added that "[t]his constitutes the element of mens rea in the criminal offence created by the statute". ^[F13] This approach has been followed in relation to s 229(1) in Morgan v Flavel , ^[F14] Flavel v Roget , ^[F15] Corporate Affairs Commission v Papoulias ^[F16] and Feil v Commissioner of Corporate Affairs ^[F17] .

In Australian Growth Resources Corp Pty Ltd v Van Reesema , ^[F18] King CJ, with whom Cox J agreed, did not refer to Marchesi v Barnes , but said of s 229(1) that, having regard to the distinction made in the penalty provision between acts done with intent to deceive or defraud the company et cetera and other acts, the subsection recognised that an officer may fail to act honestly within the meaning of that subsection without fraud. He concluded: ^[F19]

[Section 229(1)] therefore embodies a concept analogous to constructive fraud, a species of dishonesty which does not involve moral turpitude. I have no doubt that a director who exercises his powers for a purpose which the law deems to be improper, infringes this provision notwithstanding that according to his own lights he may be acting honestly.

For my own part I cannot, with respect, equate dishonesty in the context of s 229(1) with mere impropriety. As I have said, the use of power for an impermissible purpose, viewed objectively as it should be, may be improper, but it is not necessarily dishonest. Whether the element of dishonesty is adequately encompassed by the remarks of Gowans J in Marchesi v Barnes is something which does not fall for decision in this case, but it is, I think, necessary to give to the word "honestly" in a provision creating a criminal offence a somewhat wider scope than King CJ was prepared to give it in Australian Growth Resources Corp Pty Ltd v Van Reesema .

The offence created by s 229(2) -- failing to exercise a reasonable degree of care and diligence in the exercise of an officer's powers and the discharge of his duties -- does not seem to import a mental element, the test being limited to what may reasonably be expected of a director in the circumstances. ^[F20] What is significant is that the penalty provided for this offence -- $5000 -- is substantially less than that provided for a breach of subss (3) and (4).

Were it necessary to do so, it would be possible to rely upon the principle that a penal provision should be construed strictly. ^[F21] Clearly, if the alternative construction which I have rejected were adopted, both subss (3) and (4) would have a considerably wider ambit. But I am able to reach my conclusion without reliance upon that principle. Nor do I place any reliance upon the presumption that mens rea forms part of a statutory offence -- a presumption which seems presently to be undergoing a resurgence. ^[F22] Reliance upon that presumption would be inappropriate if Ch V Pt I of the Criminal Code applies to offences under the Companies Code, a point which I have no need to decide in this case. I may add specifically that, since as a matter of construction the relevant provision, s 229(4), does expressly declare an intention to cause a particular result to be an element of the offence created, I have no need to resort to s 23 of the Criminal Code, even if Ch V Pt I does apply.

I have had the advantage of reading the reasons for judgment of Mason CJ, Brennan, Gaudron and McHugh JJ and agree with them, for the reasons which they give, that, notwithstanding some deficiencies in the trial judge's charge to the jury, there was no miscarriage of justice in this case.

I would dismiss the appeal.