R. v. YUNG LEONORA

IN THE HIGH COURT

1994, No. 676

Magistracy Appeal

-Headnote-

Magistracy Appeal - s121(4) Companies Ordinance - Charge of failing "to take all reasonable steps to secure compliance" by a company with requirements concerning books and records - Appellant found by magistrate to have failed to prove, on a balance of probabilities, that she had delegated responsibilities to a competent and reliable person. Held on appeal: The ingredients of the charge were not proved. The magistrate erred by, in effect, reversing the onus of proof.

IN THE HIGH COURT

1994, No. 676

Magistracy Appeal

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J U D G M E N T

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Litton, J.A.:

1. This is an appeal against conviction by a magistrate Mr P Kelly at the Western Magistracy on one charge brought against the appellant under section 121(1)(4) of the Companies Ordinance. Upon conviction the appellant was ordered to pay a fine of $7,500 and costs of $4,000 to the Official Receiver. The charge was to the effect that between the period 8 May 1989 and 30 October 1991 the appellant, being a Director of Triune International Company Limited, permitted default to be made by the company in preserving its accounting records.

2. The undisputed facts were these. The appellant was a minority shareholder and a Director of the company. The company shared premises with another company called Horizon Consumer International Limited. The majority shareholder of the company was a Mr Stephen Ho who was also a Director, the General Manager and had the title of "President".

3. At all material times up to the end of April 1991 the appellant was in charge of the accounts. There was also an accountant, who resigned in March 1991, and a bookkeeper.

4. The prosecution called only one witness (PW1) who was employed by the firm of accountants acting as auditors of the company. PW1's evidence was to the effect that he made a full audit of the books of the company for the year ending 31 December 1990 and said that as at February 1991 the company had complete sets of accounting records. The accounts were entered in a computer accounting program and there were printouts of the accounts.

5. The appellant's unchallenged testimony was to this effect: she and the company Horizon Consumer International Ltd., of which she was the majority shareholder, were "politely asked to leave" the offices of Triune in April 1991. Accordingly she left on 30 April 1991, together with the bookkeeper. Prior to leaving, the accounts of the company were fully updated in the computer program and spreadsheets containing a complete set of the company's accounts as at 30 April 1991 were produced and handed to Mr Stephen Ho prior to her departure. The last day she attended Triune's office was 30 April 1991. Thereafter she never went back.

6. As things transpired, the company was would up in October 1991 and when its affairs were examined it was found that books and records for the period 14 March 1989 to 30 October 1991 were missing.

7. The question for the magistrate was whether, upon all the evidence before him, the prosecution had proved beyond a reasonable doubt that the appellant had committed an offence contrary to section 121(4) of the Companies Ordinance. Section 121(4) states:

"(4) If any person being a director of a company fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own willful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be liable to imprisonment and a fine....."

8. As can be seen, the thrust of the offence is that the Director should "fail to take all reasonable steps to secure compliance" by the company with the requirement for the keeping of books of accounts.

9. The question for the magistrate was therefore this: Has it been proved to his satisfaction that the appellant had failed to take reasonable steps in the way averred?

10. In my judgment, it is difficult to see how, on the evidence before the court, the magistrate could have been so satisfied. When the accounts were within the appellant's control, the incontrovertible evidence was that not only were the books and records kept, the accounts recorded in those books were kept up-to-date. She was, in effect, eased out of any management position by the majority shareholder. Once she left the office at the end of April 1991, it is difficult to see what steps she could effectively have taken to secure compliance by the company with the requirements of the section.

11. Instead of focusing upon the gravamen of the offence as stated in s121(4) of the Ordinance, the magistrate, because of the way the matter was presented to him by the prosecutor, focused upon the proviso to the section which states:

"Provided that -

(a) in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that he had reasonable ground to believe and did believe that a competent and reliable person was charged with the duty of seeing that those requirements were complied with and was in a position to discharge that duty...."

12. The magistrate said, in convicting the appellant, that there was no evidence from which he could conclude that the appellant believed that Ho, the man left in charge of the office, was a "competent and reliable" person. He went on to say:

"The appellant had failed to prove, on the balance of probabilities, she delegated her duty to a person she had grounds for believing to be competent and reliable and in the premises, the appellant was convicted."

13. This was, in effect, to reverse the burden of proof. The appellant was not required by law to prove anything. What the magistrate had to be satisfied about, at the end of the day, was whether the appellant had failed to take all reasonable steps to secure compliance by the company with the requirements of the section: this is what the section creating the offence says.

14. In my judgment, if the magistrate had applied his mind to the ingredients of the charge, he could not have been satisfied, upon the evidence, that the appellant was guilty as charged. In so far as she was able to do so, she had taken all reasonable steps to secure compliance.

15. The appeal must be allowed and the order for the payment of a fine and costs must be discharged. If the fine or costs have been paid, they must be repaid to the appellant or her solicitors.