Chtouki v Ministry of Business, Innovation and Employment
[2017] NZHC 374
•8 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CRI-2016-404-388 [2017] NZHC 374
BETWEEN YOSEF CHTOUKI
Appellant
AND
MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT Respondent
Hearing: 20 February 2017 Counsel:
P J Davey for Appellant
S Wilson for RespondentJudgment:
8 March 2017
JUDGMENT OF WHATA J
This judgment was delivered by me on 8 March 2017 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Meredith Connell, Auckland
CHTOUKI v MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT [2017] NZHC 374 [8 March
2017]
[1] Mr Chtouki appeals his conviction in respect of:
(a) Five charges that he breached a notice prohibiting him from being a director of a company or taking part in the management of the company under s 385(3) of the Companies Act 1993 (the Act); 1 and
(b)One charge that he made false statements about the residential addresses of the director and shareholder of Bunamagoo Pty Limited to the Companies Office Register under s 377 of the Act.
[2] The notice of appeal identifies numerous grounds but, helpfully, Mr Davey, for the appellant, identified two key issues:
(a) Whether the trial Judge was wrong to conclude that the appellant had been given the notices under the Act in accordance with the statutory requirements; and
(b)Whether the trial Judge was wrong to conclude that the appellant had knowingly made false statements on the Companies Office website.
The appeal in a nutshell
[3] Two notices, in writing, had to be served on Mr Chtouki: a notice of an intention to prohibit Mr Chtouki from managing a company and then a notice of prohibition. Service may be given effect to, among other ways, in person or by post to the “last known address”.2 The purpose of the notice of intention is to give the addressee the opportunity to make representations to the Registrar. Failure to comply with the prohibition notice gives rise to criminal sanction, as these proceedings demonstrably illustrate.
[4] Service of these notices was managed by Ms Holyoake, a Director
Prohibition Advisor for the Ministry of Business, Innovation and Employment
1 The companies being: ANZ Management Group Ltd, Beauty Management New Lynn Ltd, Bunamagoo Pty Ltd, Hair Shop Ltd and Positive Construction Management Ltd.
2 Companies Act 1993, s 364.
(MBIE). The notice of intention was sent to Mr Chtouki’s counsel (Mr Cordwell) in unrelated insolvency proceedings. Mr Cordwell told a representative of the Official Assignee that he passed this notice on to Mr Chtouki, but he could not recall in evidence that he in fact passed it on to Mr Chtouki. The prohibition notice was sent by post to residential addresses provided by Mr Chtouki to the Companies Office in respect of the companies that formed the subject matter of the decision to issue a prohibition notice, but not to the address most recently provided by Mr Chtouki to the Companies office. Mr Chtouki was however told about the notice by his second counsel, Mr Judd, in the insolvency proceedings, but it appears Mr Judd did not give him a copy of it.
[5] Against this background, Mr Chtouki challenges:
(a) The Judge’s findings that there was effective service in writing of
either notice; and
(b) The power of a Director Prohibition Advisor, not the Registrar or
Deputy Registrar, to effect service in the manner alleged.
[6] In terms of the false statement allegations, there is a dispute about whether there was a proper basis for finding knowledge given the evidence about how registration details are filled out online.
Background
The prohibition notices
[7] In 2012 Mr Chtouki was facing insolvency proceedings. About this time a Deputy Registrar of Companies resolved to issue a notice advising Mr Chtouki (then known as Mr Brooks) that the Registrar was considering issuing a notice prohibiting Mr Chtouki from acting as a director or managing a company. Ms Holyoake, Director Prohibitions Advisor, enlisted the help of Ms Flood, who was managing the insolvency proceeding for the Official Assignee, to serve the notice of intention on Mr Chtouki. Ms Flood sent the notice with Mr Chtouki’s then counsel, Mr
Cordwell, who subsequently confirmed receipt of the notice and stated that he had passed the notice to Mr Chtouki (but he could not recall this in evidence). As Mr Chtouki took no steps in relation to the notice of intention, the Deputy Registrar, exercising delegated authority, resolved to issue a prohibition notice on 28
November 2012.
[8] Ms Holyoake sent a copy of the prohibition notice to Mr Cordwell on 15
January 2013 but received no reply. She subsequently called Mr Cordwell about the notice, who advised that he had not had the opportunity to give the notice to Mr Chtouki. A further call on 18 March revealed that Mr Cordwell had still not given Mr Chtouki the notice. Mr Holyoake then decided to serve the notice by post to the addresses of failed companies that provided the basis for the prohibition notices: Beauty Management Riccarton Limited (in liquidation), Pink Doll (in liquidation), Hairstyle Management Eastgate Limited (struck off), Hairstyle Management The Palms Limited (struck off). The prohibition letter was sent on 5 July 2013. It stated that Mr Chtouki was prohibited from being a director of or from being concerned in or taking part in the management of any company for a period of four years effective from 28 November 2012. It was posted to:
(a) 24 Tiroroa Avenue, Te Atatu South, Auckland; and
(b) 368 Great North Road, Auckland.
[9] The letter to 368 Great North Road was returned. The notice of prohibition was then Gazetted on 25 July 2013.
[10] Meanwhile, Mr Judd assumed responsibility for insolvency proceedings in August 2013 at which time he received Mr Cordwell’s file. He then advised Mr Chtouki about the prohibition notice, noting that he would not be able to act as a director or be involved in the management of a company, but that he could still operate as a sole trader or as an employee of a company.
[11] When interviewed on 6 March 2014, Mr Chtouki said he had not received the prohibition notice from Mr Cordwell or Mr Judd, and was only made aware of it by Mr Judd, who said he could operate as a sole trader.
Undisputed fact
[12] Mr Chtouki managed a company in the prohibition period for the purpose of s
385, including from August 2013 to March 2014 when he was interviewed.
The false statement
[13] On 9 January 2013, Mr Chtouki completed an online annual return for Bunamagoo Pty Ltd on the Companies Office register, and provided the residential addresses of director and shareholder Romana Jungwith. The director’s address entered was Unit 14, 7 Queen Street, Auckland City, 1010, New Zealand, which was in fact the address for Hair Club at Westfield, Downtown, and not Ms Jungwith’s residential address. The address entered for Ms Jungwith as shareholder, 318/22
Neilson Street, Auckland City, 1010, New Zealand, was also incorrect. First, it did not exist. Second, with a minor change from ‘Neilson’ to ‘Nelson”, it was Mr Chtouki’s address for a time, not the shareholder’s address.
The Charges
[14] The prohibition charges were laid pursuant to s 385 (9), which states:
(9) Every person to whom a notice under subsection (3) is given who fails to comply with the notice commits an offence and is liable on conviction to the penalties set out in section 373(4).
[15] The elements to be proven were accurately stated by the Judge, namely:
(a) Firstly, the defendant has been prohibited by the Registrar of Companies under s 385(3) of the Act from being a director or promoter of a company, or being concerned in or taking part, whether directly or indirectly, in the management of a company, for a period not exceeding 10 years after the date of the notice;
(b) That the defendant has been notified in writing of the prohibition (s
385(3));
(c) The defendant’s prohibition has been published in the New Zealand
Gazette (s 385(3));
(d)The defendant has breached the terms of the prohibition by being a director or promoter of a company, or taking part in the management of the company (s 385(9)); and
(e) The act of directing, promoting or management takes place in the time period specified in the written notice (s 383(3)).
[16] The false statement charges were laid pursuant to s 377 of the Act and s 66(1) of the Crimes Act 1961. There is no dispute that the elements for this offending were:
(a) The defendant made a statement in a document required by or for the purposes of the Act;
(b) The statement was false or misleading in a material particular; and
(c) The defendant knew the statement to be false or misleading.
The Notice requirements
[17] Section 364(1) of the Act stipulates:
364 Notice by Registrar
(1) A notice that the Registrar is required by this Act to give to a natural person, must be given in writing and in a manner that the Registrar considers appropriate in the circumstances.
[18] Subsection (2) then stipulates that the Registrar may give notice in writing by
(among other ways):
(a) Having it delivered to that person; or
(b) Posting it … to that person at his or her last known address.
[19] Section 392 then stipulates that delivery to a person must be made by “handing the document to the person”. It also stipulates that a document posted to the last known address is deemed to have been received five working days after it is posted.3
The judgment
[20] Judge G A Fraser concluded that the notice of intention was served on Mr Chtouki, finding that Mr Cordwell passed it to him at some point prior to his email confirmation on 21 August 2012.4 The Judge also found that the prohibition notice was served on Mr Chtouki when Ms Holyoake posted it to his registered addresses in respect of the companies that had formed the subject matter determining Mr Chtouki’s prohibition.5 The Judge found that these were the “last known addresses”, being the most recent addresses Mr Chtouki had provided for the companies whose failure resulted in the prohibition.6 The Judge also found that Mr Chtouki knew of the prohibition. His statement to MBIE confirmed that he knew about it and there was witness testimony that Mr Chtouki told the witness that he could not manage a company due to bankruptcy issues.7 The Judge then found that Mr Chtouki managed the companies subject to the charges under various alias’s including Ricardo Santoro, Shamir Doutros and Paco Amani.8
[21] On the false statement charge, the Judge referred to Mr Chtouki’s acknowledgment that the shareholder of Bungamogoo Pty Limited did not reside at the address that he had registered for her. The Judge rejected as not credible Mr Chtouki’s evidence that he was simply mistaken. The Judge referred to evidence
about online registration noting:9
[314] Evidence from Mr Fenn was that when entering an address a drop- down box appears stating:
3 See section 392(1)(a)(i) and (b).
4 R v Chtouki [2016] NZDC 6712 at [63]-[69].
5 At [92]-[94], [106]-[107] [111] and see [8] above.
6 At [110].
7 At [115]-[119].
8 At [145], [177]-185], [192]-[201], [235],[262]-[264], [293].
All directors must provide their physical residential address, this cannot be a PO Box or a private bag address or a virtual office.
[22] And further at [317]:
[317] Mr Fenn’s demonstration of filling out these forms clearly demonstrate[s] that when an address is entered onto the Register the NZ Post address fields appear, notifying the user of what is and is not a legitimate address.
[23] The Judge also observed that the address allocated for the shareholder,
318/22 Neilson Street, did not exist, though he accepted it may have simply been a
misspelling of Mr Chtouki’s Nelson street address.10
Argument
[24] Mr Davey submits that the Judge is wrong because:
(a) The manner of service is critical in terms of the statutory scheme and the Registrar had to be satisfied that it was an “appropriate” form of service in the circumstances;
(b)Ms Holyoake, not being the Registrar or Deputy Registrar, was not empowered to determine the basis upon which the notice might be served on Mr Chtouki;
(c) The method of service was, in any event, unreasonable:
(i) The Act enables a service at the “last known address” of the
addressee;
(ii)The whole purpose of the last known address is that it is the most likely address where the person will receive mail;
(iii) By contrast, the addresses used by Ms Holyoake date back to
2007 and 2009 and relate to defunct companies;
(iv)Posting copies of the notice to these addresses did not satisfy the requirement that it be “at his or her last known address”; and
(v)The last known address for Mr Chtouki in the company records was Apartment J, 99 Customs Street, Auckland CBD, which was in fact used by the Official Assignee for the purpose of the insolvency proceedings.
(d)Personal service, in accordance with the standard guidelines issued by the Companies Office was the most appropriate form of service;
(e) The evidence did not support a finding that Mr Cordwell had “passed”
the notice of intention to Mr Chtouki;
(f) The evidence did not support a finding that Mr Chtouki knew about the effect of the prohibition notice. Rather it shows that Mr Chtouki was not given any detailed advice about the effect of the notice; and
(g)The Judge was wrong about the online registration process – Mr Fenn’s evidence about a drop down box which asked for the director’s physical address related to an online form for adding a person as a director, and his statement was that this box appeared when a question mark beside the address line was clicked. There was no evidence that Mr Chtouki had clicked the question mark.
[25] Ms Wilson for MBIE responds:
(a) The method of service is a purely administrative task and a matter of implied sub-delegation and a Deputy Registrar was aware, in any event, of the steps to be taken to effect service of the notice of
intention;11
11 Citing Philip A Joseph Constitutional and Administrative Law in New Zealand (4th ed, Thomson
Reuters, Wellington, 2014) at [23.3.2].
(b)Service in accordance with one of the methods specified at s 364(2) is lawful independently of s 364(1), as they are statutorily prescribed;
(c) A finding that Mr Cordwell passed the notice of intention to prohibit was available to the Judge;
(d)Service by way of post of the prohibition notice on the addresses provided by Mr Chtouki in relation to the failed companies was lawful and reasonable in the circumstances – they were the companies for which the Registrar considered there should be prohibition and Mr Chtouki was obliged to keep the addresses updated;
(e) Given the multiple addresses provided by Mr Chtouki, service on the last registered address provided no more surety than the other addresses provided, and the possibility of service at that address of the insolvency proceedings was not known to Ms Holyoake until they evening prior to the proceedings; and
(f) As to the false statement charge, the judge’s finding was based on a broad assessment of Mr Chtouki’s credibility rather than any individual piece of evidence, including that by Mr Fenn. In any event, the judge did not find that the drop box was automatic.
Assessment
[26] I propose to address the question of effective service first. [27] I make two preliminary observations:
(a) The Judge correctly resolved that the notice of intention was properly served on Mr Chtouki. As stated by the Judge contemporaneous records show that Mr Cordwell told Ms Flood that he had passed it on to Mr Chtouki. While Mr Cordwell could not recall having done this in evidence, there is no reason to suspect that he would have intended to mislead Ms Flood about it; and
(b)Conversely, I reject as contrary to the express statutory requirement for service to be in writing any suggestion that verbal communication of the prohibition notice by Mr Judd was, by itself, sufficient. It is however relevant to the reasonableness of the decision to serve by post.
[28] The central issues therefore are whether Ms Holyoake achieved service at Mr Chtouki’s “last known address” and/or whether the sending the notice to the addresses of the companies whose failure resulted in the prohibition was lawful and reasonable in the circumstances.
Last known address
[29] I was not taken to any authority on the phrase “last known address” but I accept that its purpose is to secure proper service of documents that ultimately might lead to criminal sanction. A narrow rather than expansive definition is to be preferred in order to secure substantive fairness.12
[30] Simplistically, the ‘last known address’ for the purpose of prohibition refers to the last registered address of a “named” director. As has been said, however, on numerous occasions, context is everything.13 In the present context, there are a number of important factors:
(a) The Companies Act 1993 requires accurate and up to date registration
of a director’s residential address – refer ss 12(2)(b(ii), 159(2)(b) and
377;
(b) The prohibition notice was related to Mr Chtouki’s (aka Mr Brooks)
conduct in respect of specified companies; and
(c) As Mr Chtouki’s circumstances amply illustrate, the registrar can have no surety that the last registered address of a “named” director in a
12 R v Darwish [2006] 1 NZLR 688 (HC) at [22].
13 R (Daly) v Secretary of State for the Home Department [2001] UKHL 26, [2001] 2 AC 532 at
[28].
particular company is either accurate (it may or may not refer to the same person) or will reach the director of the company to which the prohibition relates.
[31] To elaborate, s 159(2)(b) requires that when there is a change of directorship, a notice must be delivered to the Registrar for registration with the information required by s 12(2)(b)(i)-(iii). Relevantly, s 12(2)(b)(ii) requires that the applicant specifies their residential address. Section 377 then provides that it is an offence to knowingly make a false statement with respect to a document required by the Act. There is a line of case law, albeit under the Companies Act 1955, which confirms that the purpose of the requirement that companies provide a registered office is so that others dealing with the company can rely on the public register as correctly
stating the location.14 While the present matter concerns the director’s listed address,
the substance of the authorities applies equally here: the purpose of publically listed information on the register is that third parties may rely on that information when dealing with the company.
[32] In these circumstances, I am satisfied that for the purpose of dealings concerning prohibition, the last known address of the director is the registered address specified by the director in relation the company to which the prohibition relates. Given a director’s obligation to keep up to date registration and the fact that the notice related to specified companies, the last “known” address is logically the address stated by the director in relation to those companies. To hold otherwise would be to cast on the Registrar a speculative search function which the scheme of the Act plainly envisages will be achieved by up-to-date record keeping by the affected director until the company is struck off. I also see no unreasonableness or unfairness in this approach. A director cognisant of his duty to keep up to date records cannot complain when the registrar sends a notice pertaining to his directorship of the affected company to that address.
[33] Two residual issues in this case are:
14 Re Milne Orchards Ltd (in liq) (1999) 19 NZTC 15,327; Parker v Rock Finance Corporation
Ltd [1981] 1 NZLR 488 (CA) at 497.
(a) Whether the decision to serve on the last known address was reasonable given that three of the companies to which the prohibition relates had been struck off; and
(b)Whether the Registrar may assume service when the notice is returned unopened.
[34] I consider the answer to the first issue is resolved by reference to s 326 of the
Act which provides:
326 Liability of directors, shareholders, and others to continue
The removal of a company from the New Zealand register does not affect the liability of any former director or shareholder of the company or any other person in respect of any act or omission that took place before the company was removed from the register and that liability continues and may be enforced as if the company had not been removed from the register.
[35] This makes plain that the company is deemed to be registered for the purpose of enforcement against former directors and shareholders, and in my view that must include service. I am also satisfied that the decision to serve on Mr Chtouki at the address registered in respect of the struck off companies was not unreasonable given the proximity of the service to the striking off, which would have occurred in relation to one of the companies little more than a month prior to service of the
prohibition notice.15 I am fortified in this view given that additional steps were taken
to secure notice of the prohibition, which in fact resulted in Mr Chtouki becoming aware of the notice.
[36] In relation to the returned notice of prohibition (which was sent to the address specified on the company records of Pink Doll Ltd (one of the companies the subject of the notice of Prohibition), I am not prepared to hold that this was effective. There is longstanding authority in an analogous context that a returned notice is not
effective, as the deeming provision depends on the fact of delivery to the address.16
15 That company being Beauty Management Riccarton Limited. The notice of intention to remove was gazetted on 4 April 2013.
16 Fawcett v Graham [1973] 1 NZLR 495 at 498. I also adopt the further reasoning in that case, namely, at 498, that “So long as it is proved that the registered letter has not been returned undelivered the reasonable inference in most cases will be that delivery was duly made.”
[37] In any event, I am satisfied therefore that proper service of the prohibition notice, in accordance with s 364(2), was achieved.
Other notice issues
[38] Having reached the above conclusion it is unnecessary to resolve the remaining issues concerning delegated authority. Given the significance of this issue my observations should be treated as obiter only and are made in case it might be of assistance to the parties.
[39] The performance of a purely administrative task, such as service of documents in accordance with an approved statutory method, in the execution of a statutory power is to my mind a pinpoint example of an administrative act contemplated by the statutory power. In short, the decision to serve by way of a method specified at s 364(2) was purely an exercise in administration of a decision to issue of a prohibition notice. By contrast, a decision to serve via a method not specified at s 364(2) may require the exercise of an evaluative discretion reposed by Parliament in the Registrar. Exercise of this function by the Registrar, or statutorily
authorised sub-delegate, would appear to be necessary.17
[40] In the present case, had I been wrong about the service of the notice on the last known address, I would have been slow to attribute to Ms Holyoake the power to effect service in a manner not specified at s 364(2). Given the prospect of criminal sanction, the appropriateness of the method of service required the imprimatur of the Registrar or properly authorised delegate. While there appears to be evidence that a deputy registrar approved service of the notice of intention (and there is evidence of actual service, so any error of law was immaterial in any event), I was not taken to any evidence to show that the registrar or deputy registrar knew or expressly approved of service at the addresses of the companies that formed the subject matter
of the notice.
17 As to the distinction between the exercise of discretionary power and administrative function powers and the rule against sub delegation, see Joseph, above n 11, at [23.3.6].
False statement
[41] I can deal with this summarily. The evidence about the “drop down box” was simply one factor taken into account by the Judge. I also agree with Ms Wilson that there is nothing in the judgment to suggest that the Judge assumed it would automatically drop down. Moreover, it is quite plain that the Judge, for ample reasons, held an adverse view of Mr Chtouki’s credibility. Mr Chtouki was obviously very familiar with the use of the Company online procedures and more broadly the registration of companies. Little surprise then that on the issue of false statements, Mr Chtouki’s professed innocence carried little weight.
Outcome
[42] Service of the notice of intention was achieved when Mr Cordwell passed it to Mr Chtouki. Service of the notice of prohibition was achieved when the notices were sent to Mr Chtouki’s (then known as Mr Brooks) registered addresses as a director of the companies that formed the background to the prohibition notice. These were his last “known” addresses as a director of those companies even though they had, by this stage, been struck off. It was not otherwise unreasonable to serve on those addresses, because the striking off of one of the companies was relatively recent. The Judge had an ample basis to find that Mr Chtouki made a false statement about the address of a shareholder on Bungamogoo Pty Limited.
[43] The appeal is dismissed.
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