R v Graham HC Wellington CRI-2010-085-2538
[2011] NZHC 466
•10 May 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CRI-2010-085-2538
THE QUEEN
v
DOUGLAS ARTHUR MONTROSE GRAHAM MICHAEL HOWARD REEVES WILLIAM PATRICK JEFFRIES
LAWRENCE ROLAND VALPY BRYANT
Hearing: 5 May 2011
Counsel: D La Hood and V C Brewer for Crown
T G Stapleton for Accused Reeves
R C Laurenson for Accused Jeffries (and on instructions for AccusedBryant and Graham) Judgment: 10 May 2011
RESERVED JUDGMENT OF DOBSON J (Application for preliminary orders
under s 24 Criminal Disclosure Act 2008)
[1] The accused in this case are charged with offences contrary to s 58 of the Securities Act 1978, in relation to allegedly untrue statements in a prospectus and advertisements in relation to fundraising attempts for Lombard Finance and Investments Limited (Lombard).
[2] The accused have applied under s 24 of the Criminal Disclosure Act 2008 (the Act) seeking disclosure of certain categories of information from seven entities
who are not parties to the criminal proceedings. In the course of argument,
R v GRAHAM HC WN CRI-2010-085-2538 10 May 2011
Mr Laurenson sought to add an eighth entity. I will list the entities involved and the scope of disclosure sought separately, once I have described the scope of the considerations relevant at this initial stage.
[3] Section 24 of the Act provides for a defendant in criminal proceedings to apply to the Court for an order granting a hearing to determine whether information that is held by a person or agency other than the prosecutor should be disclosed to the defendant. By s 24(3), an application under the section must:
24 Application for non-party disclosure hearing
…
(a) describe with as much particularity as possible the information that the defendant seeks to have disclosed, and state the name of the person or agency that the defendant alleges holds the information; and
(b) set out the grounds on which the defendant relies to establish that the information is relevant; and
(c) contain written evidence indicating that the defendant has made reasonable efforts to obtain the information from the person or agency that the defendant alleges holds the information.
[4] Section 25 then provides:
25 Determination of application for non-party disclosure hearing
If a defendant makes an application in accordance with section 24, the Court may grant the application if—
(a) it is satisfied that all or part of the information that the defendant seeks—
(i) is likely to be held by the person or agency that the defendant alleges holds the information; or
(ii) is likely to be held by another person or agency; and
(b) all or part of the information appears to the Court to be relevant.
[5] There is no issue that the circumstances in which such an application may be brought under s 24 do apply in this case so the relatively confined considerations at the present stage are those listed in s 25.
[6] With the exception of certain disclosure sought from the Securities Commission, the Crown’s opposition to the application was limited to concerns at the allegedly unjustified breadth, and lack of specificity, of the extent of the disclosure sought.
[7] There have been numerous exchanges between solicitors for the accused and various of the non-parties from whom disclosure is sought, and in some cases initiatives have been pursued personally by the accused, Mr Reeves, for access to the records of Lombard, now under the effective control of receivers appointed in respect of it. Mr Laurenson summarised his understanding of the stance presently adopted on behalf of each of the non-parties, and again I will record that in considering the position of each of them.
Lombard records
[8] I was advised that each of the accused apart from Mr Reeves resigned very shortly after the appointment of receivers to the company. Mr Reeves continues as Lombard’s sole director, and in that capacity has sought access to company records which thus far has been resisted on behalf of the receivers. Lombard was not among the non-parties listed in the application, but Mr Laurenson sought to amend the scope of the application to add the company in receivership, from whom disclosure was sought of:
All electronic data of the company from 1 July 2007 to 10 April 2008 (the date of receivership).
[9] As to the threshold assessment of relevance, Mr Laurenson explained the very broad disclosure sought from Lombard on the basis that there will be relevant materials within it, and that from what has apparently happened in other similar situations, it is substantially easier for those with control over the electronic data of the company to simply provide a complete copy of it, rather than having to review all of the electronic content to separate out some sub-set of that data that would conform to a narrower definition. Mr Laurenson’s rationale is that because of the ease of electronic retrieval of the entire body of data, the accused asked for access to
all of it, leaving the advisers to the accused or the accused themselves to identify the content that is relevant for the purposes of their defence.
[10] In his supporting submissions, Mr Stapleton relayed the understanding he has gained from counsel in similar proceedings involving Nathans Finance and Bridgecorp in which he understands that the receivers have informally facilitated the provision of disks or some other electronic format of the equivalent breadth of disclosure, to those acting for both the accused and the prosecution in those cases.
[11] For the Crown, Mr La Hood submitted that it was untenable to attribute relevance to the whole gamut of Lombard’s electronic record of data from 1 July
2007 to 10 April 2008. Mr La Hood characterised the essence of the Crown case as focusing on the circumstances existing in September 2007, in the context of unaudited statements to the end of September 2007 and the governance of Lombard from that time through until receivers were appointed in April 2008. He submitted a particular focus existed at the date of the amended prospectus in December 2007.
[12] He also disputed that the whole circumstances of governance of Lombard could have relevance, when the terms of the charges and the particulars provided in respect of them focused only on specific aspects of it, such as management of the company’s liquidity.
[13] Mr Laurenson’s rejoinder included the points that the meaning of “relevant”
as defined in s 8 of the Act suggests a relatively low threshold:
…means information or an exhibit, as the case may be, that tends to support or rebut, or has a material bearing on, the case against the defendant.
[14] Further, that not every item requested on disclosure has to be established as relevant because s 25(b) only requires the Court to be satisfied that part of the information appears to be relevant. It follows that at least at this preliminary stage, if a request for a category of disclosure can be justified because some material part within that category appears to be relevant, then that is sufficient.
[15] As to the scope of factual matters on which disclosure may be relevant, Mr Laurenson resisted any notion that the accused are obliged to describe why any
particular categories of disclosure that are sought are relevant by relating their contents to any particular argument the accused may wish to pursue. He argued that a generalised analysis of the factual scope should be accepted by the Court as sufficient because argument at any level of specificity would intrude on the accused’s right to silence.
[16] I am not persuaded that the analysis of potential relevance should be confined to a level of abstraction that prevents the Court from making a meaningful assessment of whether indeed categories of disclosure sought would include material relevant to the defence. It is inadequate for an accused to pursue such an application on the basis that he or she considers that disclosure is relevant, but is not prepared to reveal why in order to maintain his or her right to silence. In the end, my exchanges with Mr Laurenson did afford sufficient insight into the potential scope of evidentiary issues that may arise at the trial, at least to enable provisional views about relevance to be made.
[17] As to the scope of disclosure that is likely to be relevant here, I am inclined to accept that any thorough analysis of the accuracy or otherwise of statements about the management of liquidity for Lombard could not be completed without reflecting on other aspects of the manner in which Lombard was being managed at the relevant time.
[18] Further, it is apparent that some, at least, of the accused will want to raise the defence of reasonable belief in the accuracy of the statements that are cited in the indictment. In order to do so, preparation of their case is likely to relevantly extend to the context in which they monitored the management of Lombard, and directed its governance.
[19] Accordingly, my provisional view is that part of what has been sought from Lombard appears to be relevant. The request is unusually broad, but until the attitude of the receivers is known, the prospect of complete disclosure being easier than partial disclosure makes it appropriate to defer any attempt at narrowing the scope of the request in the present circumstances.
Lombard’s solicitors
[20] Lombard used separate firms of external solicitors for the preparation of prospectuses dated 7 September (DLA Phillips Fox) and an amended prospectus dated 24 December 2007 (Minter Ellison Rudd Watts). The application seeks disclosure by both firms of all written information generated or received by them in their capacity as solicitors for Lombard, relating to the receiving of instructions from, and giving of advice to, Lombard, and the carrying out of instructions from Lombard in respect of:
(a) The LFIL [ie Lombard] registered prospectus for an offer of secured debenture stock, unsecured subordinated notes and subordinated capital notes, dated 7 September 2007;
(b) The amendment to the prospectus in (a) above (by a memorandum of amendments dated 24 December 2007);
(c) The LFIL unsecured subordinated notes investment statement dated
28 December 2007;
(d) The LFIL unsecured subordinated capital notes investment statement dated 28 December 2007;
(e) The LFIL secured debenture stock investment statement dated
28 December 2007;
(f) The LFIL DVD entitled “Meet Our People” which is alleged to have
been distributed between 3 March 2008 and 3 April 2008;
including (but not limiting) the giving of advice to LFIL in respect of any of the instruments listed in (a) to (f) above after the date of any of those instruments.
[21] Solicitors for the receivers have assumed responsibility for responding to the requests made of the two firms of solicitors that had acted for Lombard. It appears that there is no objection to provision of the disclosure, but that solicitors for the receivers have indicated that disclosure would be made subject to conditions, in particular that they would provide copies of everything given to solicitors for the accused, to those acting for the Crown. Mr Laurenson considers that non-parties should not volunteer disclosure to the Crown. However, my provisional view is that there is nothing, either in the Act or in the relationship between solicitors who had acted for the company and previous directors of it which would entitle those acting for the former directors to impose any conditions on what other steps a non-party
takes, in relation to documents within its control, and which it is prepared to disclose in the face of an application under s 24.
[22] As to the records of these solicitors, Mr Laurenson made the point that the relevant prospectuses were prepared in reliance on advice from them as competent external solicitors and, at the very least, the full terms of the involvement of those solicitors is relevant to any thorough analysis of the directors having a reasonable belief in the accuracy of statements made in the prospectuses, or in advertisements that derived from the information in the prospectuses.
[23] I am satisfied at this threshold stage that part at least of the information sought from the two firms of solicitors involved in preparation of the prospectuses, appears to be relevant. I am also satisfied that the disclosure sought is likely to be held by each of those entities for the purposes of s 25. The provisional views I have expressed in relation to the disclosure sought from Lombard similarly apply to this category.
Perpetual Trust Limited and KPMG
[24] The accused also seek disclosure from the trustee for investors in Lombard and the auditors. The scope of disclosure sought is widely expressed, extending to all written information in any form held by Perpetual Trust Limited as the trustee, and separately by KPMG as auditor, which was generated or received by those entities in their respective capacities as the trustee for investors in Lombard, and as auditors of Lombard and the Lombard group, in the period from 1 July 2007 to
10 May 2008.
[25] Mr Laurenson indicated that both Perpetual Trust and KPMG had sought better definition of the disclosure required of them, but subject to that concern, have indicated a preparedness to comply with the request for disclosure. Mr Laurenson was not inclined to exclude any component parts of what has been sought. He justified the extent of the period because 1 July 2007 was half way through the six month period in relation to which the unaudited financial statements to 30 September
2007 would have been the financial statements relied on for the relevant prospectus.
At the end of the period, 10 May 2008 is one month after the date on which receivers were appointed. He anticipated that communications involving the trustee and the auditor throughout all of that period are likely to be relevant, at least to consideration of the defence of reasonable belief.
[26] The breadth of what is sought is extremely wide. I note for example in the case of Perpetual Trust Limited, the request in the similar proceedings involving directors of Nathans Finance Limited was confined to information on which a particular report was based.1 However, having provisionally acknowledged the prospect that some of the information requested in this disclosure would be relevant, it is inappropriate to consider at this stage any formula for narrowing what is to be
disclosed. Assessment of that appropriately awaits the reaction from those non-parties and any indications they may give of concerns that clearly irrelevant material has been requested, or that the task of providing disclosure can be achieved more easily without compromising the extent of relevant disclosure, if a different definition is given to its scope.
[27] It may be that there are categories of information held which the trustee or auditors can establish would not be relevant to the defence in the present case, and they may also have practical concerns about the relative extent of work involved in complying with an order for disclosure that depends on the definition of the categories of disclosure ordered. With these two non-parties, I therefore am satisfied that some part of the information sought in the disclosure from them appears to be relevant, and defer assessment of the extent to which there should be a narrowing or more precise definition of it until an opportunity is afforded for the non-parties to express their views.
[28] One consideration on the scope of disclosure from the auditors is whether, depending on the way in which their audit work was undertaken and their files are maintained, disclosure of everything that is relevant could be achieved by provision of the information in relation to Lombard, rather than Lombard Group Limited (the
parent company). That is a matter the auditors may care to address.
1 R v Hotchin HC Auckland CRI-2009-004-1388, 12 November 2010 at [14].
KordaMentha
[29] KordaMentha is an insolvency consultancy that was engaged by Lombard in September 2007, and again in March 2008, to undertake reviews of matters relating to Lombard’s lending portfolio, and the company’s liquidity. The application seeks disclosure by KordaMentha of all written information in any form that is held by that firm, and which was generated or received by the firm as a result of, pursuant to, or in the course of carrying out the two engagements.
[30] Mr Laurenson indicated that KordaMentha will respond to an order if the accused obtained one, but that does not preclude KordaMentha raising any concerns it has about the scope of what would be involved in providing disclosure of the breadth that has been sought.
[31] Certainly as far as the September 2007 engagement of KordaMentha is concerned, Mr La Hood described it as containing certain conditions, which the report suggested ought to be fulfilled before the company could prudently continue in business, and I gather that the Crown case will be that those conditions were in fact not met. Involvement of that type, and the subsequent engagement of the same firm, certainly appears to be relevant to the issues raised by the indictment.
NZX
[32] The application also seeks disclosure from NZX Limited in its capacity as operator of the New Zealand Stock Exchange. The scope of disclosure was altered in the course of argument and, as I understand it, the scope of the disclosure now sought is:
All written information (in any form) held by NZX Limited which was generated or received by NZX Limited in its capacity as a New Zealand Stock Exchange regulator and relating to [Lombard’s] or Lombard’s parent company, or the four accused in their capacity as directors of Lombard companies, or any of them, over the period 1 July 2007 to 10 May 2008.
[33] Mr Laurenson indicated that NZX is constructively discussing the scope of the disclosure request with solicitors for the accused, in circumstances where the
exchange apparently has a vast amount of material within the category described and would understandably seek to confine the task imposed on it. Depending upon the form in which the information is stored, this non-party’s position may be similar to the first group considered, ie that it is easier for the Exchange to provide a larger volume of material on an indiscriminate basis, than to apply resources to any analysis of what comes within some sub-set of the broader category requested where the requisite relevance is more readily made out. One possible narrowing is to items that make any reference adverse to the business of Lombard.
[34] Mr Laurenson would resist any such narrowing. He argued that positive material about Lombard held by the Exchange may be relevant in support of claims by the accused to a reasonable belief in the accuracy of the statements to which the indictment relates.
[35] Again, it is preferable to defer any attempt to narrow the breadth of disclosure sought, until the non-party involved is afforded an opponent of expressing its views.
[36] In respect of each of the categories of disclosure that I have provisionally accepted, there is a legitimate concern that the approach I have adopted relaxes the test for relevance more than is appropriate under s 24 of the Act. The present approach reflects the circumstances of the present case. The boundaries of relevance may be more difficult to define where the charges raise the untrue nature of statements that are relatively complex, and then lead on to questions of reasonableness of a belief in the truth of the statements, than in cases of, say rape or murder.
The Securities Commission
[37] The last component of the application treats the Securities Commission as a “non-party”. In the event that that categorisation was not correct, there is a concurrent application under s 30 of the Act for disclosure of the same information, on the basis that it is in the possession or control of the prosecutor. What is sought is the decision of the Commission to prosecute, including any minute, formal
resolution or document to similar effect of the Securities Commission resolving to institute the prosecution.
[38] Inclusion of the Securities Commission as a non-party was challenged on behalf of the Crown, on the basis that the Securities Commission continues to be identified with the prosecution. Certainly, at the time the prosecution was initiated, the Commission was “the person who is for the time being in charge of the file relating to a criminal proceeding” in terms of the definition of “prosecutor” in s 6 of the Act. I agree with Mr La Hood that it illogical to recognise the Commission’s status as prosecutor at that time, but now to treat it as other than the prosecutor simply because the conduct of the proceeding has been passed to Crown Solicitors as routinely occurs in indictable criminal proceedings.
[39] Mr La Hood’s description of the practice was supported by an extract he provided from the Solicitor-General’s Prosecution Guidelines, the opening paragraph under the heading of “Disclosure” includes the following:
…where the proceeding is on indictment a Crown Solicitor or his or her employees will have custody of the trial file but the person in charge of the files is the person designated by the NZ Police (or other prosecuting agency) as the officer in charge of the file. A Crown Solicitor or his or her employees should not be considered the prosecutor for the purposes of the Act.
[40] I accept that that accurately describes the situation and accordingly the disclosure sought from the Securities Commission is to be treated as a request for disclosure by the prosecutor. Section 16 of the Act sets out a range of reasons for a prosecutor to withhold information. These relevantly include, in s 16(1)(c), information constituting a communication dealing with matters relating to the conduct of the prosecution between the prosecutor and another person employed by the same person or agency that employs the prosecutor, or the prosecutor and any adviser to the prosecutor. Also, in s 16(1)(c)(iii), analytical or evaluative material prepared in connection with an investigation that led to the defendant being charged by a person employed by a person or agency for another person employed by that agency or for the prosecutor may also be withheld. Further, information can be withheld where any privilege applicable under the rules of evidence exists in relation to it.
[41] Here, all aspects of the record, other than a formal resolution, such as any meaningful analysis of the pros and cons of pursuing a prosecution would constitute analytical or evaluative material under s 16(1)(c)(iii). The formal decision itself cannot be relevant because the outcome is entirely clear: the decision was made to pursue the prosecution. If, say, it is reflected as a one line minute in the record of a meeting of members of the Commission, to the effect that the Commission resolved to pursue the prosecution, then it does no more than record a fact that is indisputable.
[42] To the extent that the form in which the record has been made by the Commission refers to the matters taken into account by those making the decision, then that content will be either or both of evaluative and/or privileged.
[43] Mr Laurenson alluded to a concern that the form the prosecution has taken is at a tangent to the matters that appeared to be in issue for the Commission when one or more of the accused were interviewed. He argued that the decision to prosecute was relevant because of a concern to test the prosecution’s duty to be fair. Without more, that cannot introduce the prospect of relevance in respect of a record that, to the extent the Commission is not entitled to withhold it under one or more of the provisions in s 16 of the Act, must be entirely anodyne.
[44] Accordingly, the specific disclosure sought from the Securities Commission is not available.
Procedure for next steps
[45] I direct the Registrar to prepare summonses conforming with s 26 of the Act and addressed to each of the seven non-parties from whom I have provisionally recognised that disclosure may be sought. Those summonses should give notice of a further hearing that I will schedule for Thursday, 9 June 2011 at 10am, in the High Court at Wellington.
[46] I also direct that the summonses should be served with copies of the following documents annexed:
the indictment;
the Crown’s response to request for further particulars of the indictment
dated 2 March 2011;
the second amended application by the accused for non-party disclosure;2
and
this judgment.
[47] The terms prescribed for the summonses under s 26 oblige the non-parties to bring the material, disclosure of which is sought, to Court (s 26(3)(b)). I am conscious that the volume of material sought on this application is likely to render compliance with that requirement by one or more of the non-parties extremely onerous, and possibly impracticable. I invite the parties and affected non-parties to liaise about compliance with that and other terms of the summonses, to facilitate substantial compliance in the way that imposes least cost and inconvenience on the non-parties, without prejudicing the entitlement of the accused to maintain arguments for the scope of disclosure sought, at that further hearing. Both the parties and non-parties have leave to seek directions in advance of the hearing.
[48] I would be grateful if all non-parties could signal their attitude to the application for disclosure by them, by way of memoranda filed before 5pm on Friday, 3 June 2011. To the extent that the orders sought are opposed, the memoranda should include an outline of the points that are to be relied upon. To the extent that there is to be argument, counsel for the accused and for the Crown should respond to matters raised on behalf of non-parties by memoranda filed before 2pm
on Wednesday, 8 June 2011.
2 Note that the terms of paragraph 2.7 of the amended application have been revised as recorded in
[32] above.
Postscript
[49] Following completion of this judgment and as it was about to be released, I had referred to me the Memorandum dated 10 May 2011 from Mr Laurenson, advising that terms for voluntary compliance by the two firms of solicitors, DLA Phillips Fox and Minter Ellison Rudd Watts, have now been agreed, and that accordingly the applications under s 24 of the Act in respect of those two law firms do not need to be determined by the Court. In that event, summonses will not be sent to the firms as contemplated in the judgment.
Dobson J
Solicitors:
Meredith Connell, Auckland for Crown
Morrison Daly, Wellington for Graham and Bryant
Gibson Sheat, Wellington for Jeffries and Reeves
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