William Patrick Jeffries Michael Howard Reeves Douglas Arthur Montrose Graham Lawrence Roland Valpy Bryant v R Ca

• Jurisdiction: New Zealand
• Judge: Randerson,Wild,French JJ
• Judgment Date: 30 May 2013
• Neutral Citation: [2013] NZCA 188
• Docket Number: CA191/2012 CA201/2012 CA204/2012 CA225/2012 CA226/2012 CA227/2012 CA228/2012
• Court: Court of Appeal
• Date: 30 May 2013

BETWEEN

William Patrick Jeffries Michael Howard Reeves Douglas Arthur Montrose Graham Lawrence Roland Valpy Bryant

Appellants

and

The Queen

Respondent

BETWEEN

THE QUEEN

Appellant

and

William Patrick Jeffries Michael Howard Reeves Douglas Arthur Montrose Graham Lawrence Roland Valpy Bryant

Respondents

[2013] NZCA 188

court:

Randerson, Wild and French JJ

CA191/2012

CA194/2012

CA201/2012

CA204/2012

CA225/2012

CA226/2012

CA227/2012

CA228/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against conviction on charges laid under s58(3) Securities Act 1978 (“SA”) (criminal liability for misstatement in advertisement or registered prospectus) and appeal by Solicitor-General against sentences of community work and reparation — appellants were directors of finance company raising money from the public — while recognising company was experiencing liquidity issues, appellants nevertheless formed the view that the company could continue raising funds from the public, issuing an amended prospectus under the SA from which the charges arose — charges were offences of strict liability (Crown was not required to prove any criminal intent) — whether Judge's conclusion that the statements in the prospectus were untrue, was unreasonable or could not be supported having regard to the evidence — whether sentence of community work was manifestly inadequate and should be substituted by sentences comprising a combination of home detention and community work.

counsel:

J A Farmer QC, M A Corlett, D H O'Leary and M A Sissons for Jeffries, Reeves, Graham and Bryant

C R Carruthers QC and D R La Hood for the Crown

A The appeals against conviction (CA191/ 2012, CA194/ 2012, CA201/2012 and CA204/2012) are dismissed.

B Leave to appeal is granted to the Solicitor-General in respect of appeals CA225/ 2012, CA226/ 2012, CA227/2012 and CA228/2012 but a final decision on those appeals is deferred until we have the further reports identified in C below.

C We direct that updated reports be provided to this Court as soon as possible for each of the respondents under s 26A of the Sentencing Act 2002, solely to confirm the availability of suitable addresses for home detention in combination with sentences of community work.

D The sentences of reparation imposed on Douglas Arthur Montrose Graham and Lawrence Roland Valpy Bryant remain in place.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

	Para No
Introduction	[1]
The indictment	[4]
Scope of the conviction appeals	[11]
The grounds for the conviction appeals	[12]
The statutory framework	[13]
The elements of the offences	[20]
Factual context	[25]
The Ferrier Hodgson report	[36]
Events subsequent to the Ferrier Hodgson report	[43]
Events in December 2007	[51]
Events post-Christmas 2007	[53]
The witnesses	[54]
The relevant parts of the amended prospectus	[56]
The Judge's findings	[58]
Liquidity	[58]
Impairment of major loans	[72]
Adherence to lending and credit policies	[77]
First ground of appeal — misdirection on the approach to omissions under s 55 of the Act	[78]
Appellants' submissions	[78]
Discussion and decision	[82]
Second ground of appeal — the Judge's conclusion that the statements in the prospectus were untrue was unreasonable or could not be supported having regard to the evidence	[90]
Approach on appeal	[90]
The essence of the Crown's case	[97]
Mr Fisk's evidence	[102]
Mr Cable's evidence	[105]
Ms Peden's schedule	[109]
Other matters relied upon by the Crown	[116]
The defence evidence	[117]
The appellants' submissions	[138]
Discussion and decision	[140]
Conclusions	[170]
Third ground of appeal — misdirection in relation to the statutory defence under s 58(4) of the Act	[174]
The Judge's findings	[174]
The appellants' submissions	[183]
Discussion	[188]
Fourth ground of appeal — the finding that the appellants had not established the defence under s 58(4) was unreasonable and could not be supported having regard to the evidence	[192]
Discussion	[194]
Result of the conviction appeals	[199]
The Solicitor-General's sentence appeals	[200]
Introduction	[200]
The Judge's approach to sentencing	[203]
Non-executive directors — Sir Douglas Graham, Mr Bryant and Mr Jeffries	[209]
Executive director — Mr Reeves	[222]
Overview of counsel's submissions	[225]
Characterisation of the respondents' culpability	[230]
The starting point and consistency of sentencing	[232]
Nathans Finance	[233]
Bridgecorp Other	[239]
cases	[242]
Starting point — discussion	[245]
Discounts for reparation, remorse and good character	[252]
Overall conclusion on the sentences imposed	[261]
Outcome	[266]

Introduction

1 The appellants appeal against conviction on charges laid under s 58(3) of the Securities Act 1978 arising from the financial collapse of Lombard Finance and Investments Ltd in 2008. We will refer to the legislation as the Act and to the company as Lombard. The Solicitor-General seeks leave to appeal against sentences of community work imposed on the appellants.

2 The appellants were directors of Lombard, a finance company raising money from the public and lending money predominantly to property developers.

3 During 2006 and 2007 there was a tightening of economic conditions resulting in the collapse of a number of other finance companies. While recognising Lombard was experiencing liquidity issues and taking some steps to address them, the appellants nevertheless formed the view that the company could continue raising funds from the public. On 24 December 2007, the company issued an amended prospectus under the Act. The charges against the appellants arose from the amended prospectus. Lombard's position deteriorated further thereafter and receivers were appointed on 10 April 2008. Investors in the company sustained substantial losses.

The indictment

4 The indictment contained five counts. Count one alleged that the prospectus included untrue statements in five particular respects. In summary these were:

• (i) The omission of material information relating to adverse liquidity issues including the deterioration in the company's cash position from the balance at 30 September 2007 and the failure to achieve forecast cash receipts and loan repayments.

• (ii) The omission of information about adverse impairment and recoverability issues for the loans of Lombard's five major borrower groups.

• (iii) Untrue statements in relation to adherence to lending and credit approval policies.

• (iv) An untrue statement in an extension certificate that the financial position shown in the prospectus had not materially and adversely changed during the period from the date of the statement of financial position to the date of the certificate.

• (v) An untrue statement that there were no other material matters relating to the offer of securities under the prospectus.

5 To the extent that omissions were alleged, the Crown relied on s 55(a)(ii) of the Act. This provides that a statement in a registered prospectus or advertisement is deemed to be untrue if:

…[I]t is misleading by reason of the omission of a particular which is material to the statement in the form and context in which it is included:…

6 Counts two to four in the indictment alleged offending under s 58(1) of the Act. 1 It was said there were untrue statements in advertisements for three other forms of investment: unsecured subordinated notes, unsecured subordinated capital notes and secured debenture stock. Count five related to alleged untrue statements in an advertisement in the form of a DVD.

7 The appellants were tried by Dobson J sitting without a jury. After a hearing occupying some eight weeks, Dobson J delivered his verdicts on 24 February 2012. 2 He found all the appellants guilty on count one but only in respect of two of the five particulars. These were particular (i) (relating to Lombard's liquidity) and particular (v) (which the Judge saw as merely consequential upon his finding on particular (i)). The appellants were also found guilty on counts two, three and four but only in respect of particular (iii). This alleged an omission to include information relating to Lombard's deteriorating cash position. All appellants were acquitted on count five, the Judge finding that the DVD did not constitute an advertisement within the meaning of the Act and that there was no fault on the part of the appellants.

8 At trial, the appellants denied making any untrue statements (whether by omission or otherwise). They also relied on s 58(4) of the Act. This provides a defence if the person charged proves that the alleged untrue statement was immaterial or that he or she had reasonable grounds to believe, and did believe, that

the statement was true. The Judge was not satisfied that any of the appellants had made out the statutory defence

9 On 29 March 2012 Dobson J sentenced the appellants as follows: 3

Mr Jeffries	400 hours community work
Mr Reeves	400 hours community work
Sir Douglas Graham 300	hours community work and reparation of $100,000
Mr Bryant	300 hours community work and reparation of $100,000

10 The Solicitor-General contends that these sentences are manifestly inadequate. He seeks substituted sentences comprising a combination of home detention and community work.

Scope of the conviction appeals

11 The scope of the conviction appeals was limited in four respects. First, the...