Tallentire v R COA Ca603/2012, Douglas v R COA Ca623/2012, Nicholls v R COA CA

• Jurisdiction: New Zealand
• Judge: Stevens J
• Judgment Date: 20 December 2012
• Neutral Citation: [2012] NZCA 610
• Docket Number: CA603/2012 CA624/2012
• Court: Court of Appeal
• Date: 20 December 2012

BETWEEN

Owen Francis Tallentire

Appellant

and

The Queen

Respondent

BETWEEN

Wayne Leslie Douglas

Appellant

and

The Queen

Respondent

BETWEEN

Neal Medhurst Nicholls

Appellant

and

The Queen

Respondent

[2012] NZCA 610

Court

Arnold, Harrison and Stevens JJ

CA603/2012

CA623/2012

CA624/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeals against conviction and sentence — appellants were directors of collapsed finance company — convicted on charges under s220 Crimes Act 1961 (theft by person in special relationship) — appellants sentenced to either seven and a half, or five years’ imprisonment — essence of charges that appellants, knowing they had to deal with investor's funds in accordance with provisions of company's debenture trust deed (“trust deed”), intentionally departed from those obligations — High Court judge noted that Crown did not need to prove dishonesty under s220 CA and that foundation for liability was fact of intentionally dealing with property otherwise than in accordance with requirements accused knew to have been imposed in relation to that property by another person — whether Judge's interpretation and application of intention element correct — whether sentences manifestly excessive.

Counsel

N S Gedye for Appellant Tallentire

B D Gray QC and R J Sussock for Appellants Douglas and Nicholls

N R Davidson QC, N R Williams and M K Thomas for Respondent

The appeals against conviction and sentence are dismissed.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Stevens J)

Table of Contents

	Para No
Introduction	[1]
Background facts	[4]
The Numeria 1 transaction	[9]
The Clyde transactions	[22]
Numeria 2	[41]
High Court reasons for verdict	[49]
The elements of the offence	[51]
Previous s 220 cases	[52]
Intention	[53]
No concealment	[55]
The central issue – intention	[57]
The correct test for intention	[58]
Appellants’ submissions	[66]
Respondent's submissions	[76]
Intention – our analysis	[80]
Numeria 1	[83]
Numeria 1 – our analysis	[94]
Clyde 1	[104]
Clyde 1 – our analysis	[110]
Clyde 2	[120]
Clyde 2 – our analysis	[124]
Numeria 2	[131]
Conclusion on conviction appeals	[137]
Sentence appeal	[138]
Judge's approach	[139]
Submissions on sentence	[152]
Messrs Douglas and Nicholls	[152]
Mr Tallentire	[162]
Respondent's submissions	[169]
Our evaluation	[178]
Result	[189]

Introduction

1 These three appeals concern prosecutions arising out of the affairs of the collapsed finance company Capital + Merchant Finance Ltd. Following a trial before Wylie J in the High Court, Messrs Douglas and Nicholls were convicted of three charges of theft by a person in a special relationship contrary to s 220 of the Crimes Act 1961. 1 Each was sentenced to seven and a half years’ imprisonment. 2 Mr Tallentire was convicted of two charges of theft by a person in a special relationship and sentenced to five years’ imprisonment. All three appellants appeal against both conviction and sentence. On the conviction appeals, the arguments raised by each appellant are the same.

2 The appellants were directors of Capital + Merchant Finance Ltd. 3 That company was placed into liquidation on 15 December 2009. The convictions under appeal relate to the appellants’ conduct in four transactions involving funds held by Capital + Merchant Finance Ltd. The essence of each charge was that the appellants, knowing they had to deal with investor's funds in accordance with the provisions of the Capital + Merchant Finance Ltd debenture trust deed, intentionally departed from those obligations.

3 We were told this was the first case to be tried in the High Court in which finance company directors have faced s 220 charges arising from alleged breaches of the provisions of a debenture trust deed. The primary issue on the appeals against conviction concerns the correctness of Wylie J's interpretation and application of the intention element required for theft under's 220. The appeals against sentence are advanced on the ground that the sentences are manifestly excessive.

Background facts

4 The essential factual background is not in dispute. For this reason our description of the four transactions closely follows the descriptions carefully and comprehensively outlined by Wylie J in the reasons for verdict.

5 Capital + Merchant Finance Ltd was incorporated in 2002. Its business was the provision of loans for property development and construction projects. The

range of financial services offered by Capital + Merchant Finance Ltd included term loans, revolving credit facilities and related fee-based facilities. These services were financed by borrowing funds from the public. In order to comply with s 33 of the Securities Act 1978, Capital + Merchant Finance Ltd's fundraising was controlled by a debenture trust deed. Perpetual Trust Ltd acted as the trustee

6 There are two key provisions of the debenture trust deed. Clause 6(2) contained specific obligations concerning related party transactions as follows:

enter into any Related Party Transaction (as defined in clause 6(3)) except in the ordinary course of business and where the terms thereof are evidenced in writing and the consideration therefore is on the basis of an arms length transaction as between two unrelated parties contracting in an open market.

• 6(2) The Company and each of the Charging Subsidiaries covenants with the Trustee that none of them will, without the prior consent of the Trustee

  • (a) Restriction on Related Party Transactions

7 Clause 6(4) of the trust deed also contained a number of general covenants:

Each of the Company and the Charging Subsidiaries hereby covenants with the Trustee that it will–

carry on and conduct its business in an efficient, prudent and businesslike manner,

duly and promptly comply with all laws, directives and consents the non-compliance with which might give rise to a Charge or have a material adverse effect on the Company or may adversely and materially affect the rights or security of the Trustee or any Stockholder or Depositor under this Deed.

• 6(4) General covenants

• …

• (b) Carry on business

• …

• (g) Compliance with Laws, etc

8 The appellants were found to have intentionally dealt with investors’ funds contrary to these terms. The offences with which they were charged relate to four separate transactions. These are known as Numeria 1, Numeria 2, Clyde 1, and Clyde 2. On appeal counsel for all three appellants made no challenge to the factual findings of Wylie J concerning the corporate/trust structure of the entities involved. Neither was there any challenge to the Judge's findings of how each transaction was carried out.

The Numeria 1 transaction

9 The ownership structure of Capital + Merchant Finance Ltd as at June 2003, prior to Numeria 1, is conveniently illustrated by Diagram One (set out in the Appendix to this judgment).

10 The sole shareholder of Capital + Merchant Finance Ltd was Longbow Ltd, which was in turn wholly owned by Capital + Merchant Group Ltd. Capital + Merchant Group Ltd was owned by Investment Capital Trust Ltd, which was the corporate trustee of Investment Capital Trust. Messrs Nicholls and Douglas were the sole directors and shareholders of Investment Capital Trust Ltd. The beneficiaries of the Investment Capital Trust were the Boston Trust, of which Mr Nicholls was a discretionary beneficiary, and the Independence Trust, of which Mr Douglas was a discretionary beneficiary.

11 The background to Numeria 1 concerned a company called Numeria Holdings Ltd which owned all of the shares in a finance company called Numeria Finance Ltd and a beach property at Omaha. In June 2003 Investment Capital Trust Ltd purchased Numeria Holdings Ltd from Wiltshire Equities Ltd. It paid $980,729 to acquire the shares in Numeria Holdings Ltd and $1,650,000 for the beach property.

12 On 2 July 2003 Messrs Douglas and Nicholls became directors of a company named Paua Capital Ltd which became the trustee of the Paua Capital Trust. Mr Nicholls and his wife were the beneficiaries of this trust. In the same month, Numeria Holdings Ltd sold the beach property to Paua Capital Ltd to be held on trust for the Paua Capital Trust. The purchase price of $1,650,000 was obtained by way of a loan for the equivalent sum from Investment Capital Trust Ltd.

13 The Numeria 1 transaction involved a loan of $7.66 million from Capital + Merchant Finance Ltd to Capital + Merchant Group Ltd to enable that company to purchase the 66 per cent shareholding in Numeria Holdings Ltd owned by Investment Capital Trust Ltd. This transaction formed the basis of count one of the indictment. It is modelled in Diagram Two.

14 On 8 November 2004 Investment Capital Trust Ltd agreed to sell its shares in Numeria Holdings Ltd to Capital + Merchant Group Ltd. The purchase price was $10 million, with an initial payment of $6 million. At the same time, Capital + Merchant Group Ltd also agreed to purchase $1,660,000 of capital notes from Investment Capital Trust Ltd. Those notes had been issued by Numeria Finance Ltd.

15 The total payment of $7.66 million made by Capital + Merchant Group Ltd to Investment Capital Trust Ltd was entirely financed by Capital + Merchant Finance Ltd.

16 Capital + Merchant Group Ltd had applied to Capital + Merchant Finance Ltd for a loan of $7.66 million on 15 November 2004. The application was not accompanied by a valuation; rather, it relied upon a memorandum of cashflow projections for Numeria Finance Ltd that had been prepared by Mr Tallentire. Mr Tallentire calculated that the purchase of the shares in Numeria Holdings Ltd could generate a cashflow benefit for Capital + Merchant Group Ltd...