Auckland Standards Committee No. 1 v Robert Barry Whale

• Jurisdiction: New Zealand
• Judge: Judge D F Clarkson,Mr M Gough,Mr G McKenzie,Ms S Sage,Mr W Smith
• Judgment Date: 20 March 2014
• Neutral Citation: [2014] NZLCDT 22
• Docket Number: LCDT 040/13
• Court: Lawyers and Conveyancers’ Disciplinary Tribunal
• Date: 20 March 2014

BETWEEN

IN THE MATTER of the Lawyers and Conveyancers Act 2006

Auckland Standards Committee No. 1

Applicant

and

Robert Barry Whale

Practitioner

[2014] NZLCDT 22

CHAIR

Judge D F Clarkson

MEMBERS OF TRIBUNAL

Mr M Gough

Mr G McKenzie

Ms S Sage

Mr W Smith

LCDT 040/13

NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

Penalty decision following an admission to one charge pursuant to s241(d) Lawyers and Conveyancers Act 2006 (Charges that may be brought before Disciplinary Tribunal) — former partner in law firm appointed as director of client companies — later convicted on charges under s58 Securities Act 1978 in relation to misstatement in prospectuses issued by the companies — Standards Committee and practitioner had agreed on a 7 month suspension – whether 7 month suspension was adequate.

COUNSEL

Mr P Davey for Standards Committee

Mr P Davison QC for the Practitioner

DECISION OF NEW ZEALAND LAWYERS AND CONVEYANCERS DISCIPLINARY TRIBUNAL

Introduction

1 The practitioner admitted one charge pursuant to s 241(d) as set out below. The hearing thus focused on penalty and in particular the length of time of suspension from practise which ought to be imposed. Suspension had been previously agreed by the parties as the proper penalty. Indeed, they had proposed a particular period (namely seven months or “at least seven months” on the part of the Standards Committee). The Tribunal did not feel constrained to accept this proposal without further inquiry. Thus submissions were heard from both counsel and our decision reserved. We now deliver that decision.

Charge

2 The admitted charge reads as follows:

Auckland Standards Committee 1 of the New Zealand Law Society charges that Robert Barry Whale has been convicted of an offence punishable by imprisonment and the conviction tends to bring his profession into disrepute.

Particulars

On or about 23 May 2013 Mr Whale was convicted of four offences under s 58(3) of the Securities Act 1978 that he was a director of an issuer of securities and had signed registered prospectuses that were distributed and which included untrue statements as detailed in the indictment and summary of facts in respect of those offences.

On or about 23 May 2013 Mr Whale was convicted of three offences under s 58(1) of the Securities Act 1978 that he was a director of an issuer of securities that distributed an advertisement that included untrue statements as detailed in the indictment and summary of facts in respect of those offences.”

Background

3 Mr Whale was admitted as a barrister and solicitor in 1970, although he does not currently hold a practising certificate, having not renewed his certificate as at June 2013.

4 Mr Whale was formerly a partner in the commercial law firm of Jones Young Auckland. Dominion Holdings Finance Limited (“Dominion”) and its subsidiaries: Dominion Finance Group Limited (“DFG”); and North South Finance Limited (“NSF”); were clients of Jones Young, specifically attended upon by Mr Whale and another partner, Mr Joyce, and undoubtedly other more junior staff members.

5 Dominion primarily derived its income by way of dividends from DFG and NSF, while DFG derived its income from commercial and business lending, particularly on property transactions: and NSF, from financing property developments.

6 Mr Whale was appointed (as a non-executive director) to the Board of DFG in May 2002 and subsequently to the Boards of Dominion and NSF in November 2003 and March 2006 respectively. He attended “combined” board meetings at all material times. He was the only lawyer on the board of directors and the brief biography of Mr Whale, published in the various prospectuses advised that: he had been a partner in several national based law firms since 1972, was a partner in commercial law firm Jones Young; specialised in commercial law and taxation; was a notary public (an office bestowed by the Archbishop of Canterbury on a select few); and was a director of many private companies.

7 Mr Whale also regularly received instructions as solicitor for DFG and on limited occasions NSF, in relation to loan documentation and transactions, acting on almost all the key commercial transactions.

8 In his capacity as a director of Dominion, DFG and NSF, Mr Whale signed prospectuses issued by the companies, attesting that the offer documents conformed with legal requirements. He did not personally review and ensure the accuracy of the offer documents but relied on the senior executives and professional advisers of the respective companies.

9 In June 2008, the Dominion board announced concern about the ability of DFG and NSF to meet their ongoing payment obligations to their respective debenture holders. After the respective trustees denied approval for a moratorium, and (together with the companies bankers) restructuring proposals, DFG was put into receivership on 9 September 2008 and the date it was liquidated was in May 2009. NSF was put into receivership on 8 July 2010 and was liquidated in December 2010. To date, investors have been paid 12 cents and 65 cents on the dollar respectively.

10 It is accepted that the offer documents containing the untrue statements were in the market for approximately nine months during which in excess of $58 million of new investments was received for both companies.

11 In respect of the overall picture, DFG had investments of nearly $175 million when placed into receivership and NSF $31 million of investments.

12 Subsequently, the Dominion Group directors, including Mr Whale were indicted by the Financial Markets Authority on seven charges under s 58 of the Securities Act 1978 in relation to misstatement in prospectuses issued by the companies.

13 On 31 May 2012, Mr Whale advised the Law Society (as part of his annual declaration disclosing any matter that may affect eligibility to practise) that criminal charges had been laid against him by the Serious Fraud Office (“SFO”) and the Financial Markets Authority (“FMA”).

14 Mr Whale was acquitted in respect of the SFO charges. He pleaded guilty to, and was convicted of the seven charges preferred by the FMA.

15 Mr Whale was sentenced in the High Court on 14 June 2013 to 12 months home detention, 250 hours community work and reparation of $75,000.

Submissions for the Standards Committee

16 Because this matter had a very similar factual background to the decision in Davidson 1, in which Mr Davidson was suspended for nine months, the Standards Committee sought an order for suspension of at least seven months. This recognised the difference between the two practitioners, in that Mr Whale admitted the charge whereas Mr Davidson had defended the charge. Mr Davidson's case was the first of the professional disciplinary matters arising out of the conviction of lawyers as professional directors under the (strict liability) Securities Act provisions.

As with Mr Davidson, Mr Whale was not found to have deliberately or dishonestly approved false statements but his conduct was held by the High Court to have amounted to “gross negligence”

17 Mr Davey pointed to the fact that Mr Whale had admitted that he had not read the prospectuses before signing them nor even the trust deeds which set out the prohibitions or restrictions on related party lending.

18 In evidence before us Mr Whale repeated the claim that notwithstanding his qualifications and experience, that he was expert in security documents in relation to borrowing but not in relation to raising funds in the market. In submissions to us Mr Davey quoted from the decision of His Honour Dobson J on sentencing: 2

“[18]…….. Notwithstanding those qualifications and experience, you claim not to have understood the constraint imposed under the trust deed on related party lending, and not to have personally assessed the truth of statements made in the offer documents...