R v Clark [2023] SASCA 15 (23 February 2023)
When this appeal was brought before the Court of Appeal Mr Clark, an accountant, was facing charges of theft before the District Court alleging that he stole funds belonging to a company. Mr Clark is still facing those charges and at the time of writing it must be remembered that while it is alleged he committed certain offences, this has not been proved and, until it has been, he is entitled to the presumption of innocence.
One of the things that must be proved on a charge of theft if that the property concerned was taken without the consent of the owner. Mr Clark was the sole shareholder and the sole director of the company concerned. It could be said in one sense that he was to all intents and purposes 'the' company. However, that is not the law.
A company (an incorporated body) is an artificial person which has a legal standing in the same way as a natural person. As such, the company can:
- commit offences and be prosecuted
- sue and be sued
- have things stolen from it.
A director of a company therefore, even if they own all of the shares in the company, is not entitled to take from the company any property unless the company gives its consent. That is the same law that would apply to a natural (real) person and it applies in the same way to an 'artificial' person, such as a company.
So while a sole director and shareholder might see a company as 'my' company, in a legal sense it 'belongs' to no one - it has a distinct and separate identity in its own right.
It is alleged that Mr Clark diverted funds from a company bank account into his personal accounts in circumstances that amounted to theft. The company had been set up for the purpose of receiving money meant to be held in trust for a third party not being Mr Clark. Mr Clark applied before the District Court to have the charged against him thrown out prior to any trial. In legal terms he applied for a 'stay' of proceedings, where a court may order that the charges brought by the prosectuion cannot proceed further. The basis of his application for a stay of proceedings was that the prosecution could not prove that the company consented to the transfer of the funds to Mr Clark's account.
A company, being an artificial person, must function through its office holders and the sole officer holder was Mr Clark. A company's consent must be given therefore through the medium of its office holders and such consent will be apparent from the minutes of meetings or other documentation.
Mr Clark was the only office holder, and the only person with direct knowledge of whether or not the company had formally consented to the transfer of funds from its account. It was argued that therefore the prosecution could not prove the company did not consent and from that it followed that the charges of theft could not be proved. The court therefore should throw out the charges - in legal terms order a 'stay' of the prosecution proceedings. The District Court made that order on the basis that the judge concerned agreed that the Crown could not prove, beyond reasonable doubt, that the company did not consent to the transfer of money to Mr Clark's personal account.
The Court of Appeal ruled that Mr Clark, as a director, had to prefer the interest of the company (as a legal person) over his own interests. He could not use his power as a director to confer a personal benefit on himself. The Court of Appeal cited High Court authority that the self-interested 'consent' of a shareholder in furtherance of a crime committed against the company cannot be said to represent the consent of the company. That is so whether or not the director is also a shareholder.
The Court of Appeal found that on the prosecution case there was evidence capable of proving that Mr Clark misused his powers as a director and dishonestly failed to cause the company to comply with its obligations as a trustee of the money meant for the third party. This in turn permitted a conclusion of the dishonest misuse of director's powers, and that the company did not consent to the transactions concerned.
While no one could give direct evidence about any 'decision' of the company, it could be inferred from the circumstantial evidence that a dishonest use of director's powers had occurred without the company's consent. (The court was making this assessment based on the presumption that the prosecution could prove the relevant facts beyond a reasonable doubt).
The Court of Appeal upheld the appeal against the order of the District Court judge staying the proceedings and set that order aside. The criminal charges against Mr Clark will be heard and determined before the District Court in the normal course of events.