R v O'Brien
[2017] NZHC 1317
•15 June 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CRI-2014-085-14183 [2017] NZHC 1317
THE QUEEN
v
MICHAEL JOSEPH OʼBRIEN PATRICK FRANCIS OʼBRIEN KEVIN MARTIN COFFEY PAUL ANTHONY MAX
Hearing: 28 February-3 March; 6-10 March; 13-17 March; 20-24 March;
27-30 March; 3-7 April; 10-13 April 2017
Counsel:
G J Burston, M J Ferrier, P W Gardyne and A McIlroy for Crown
R B Squire QC for M OʼBrien
C W J Stevenson for P OʼBrien
Mr C in person
M A Corlett QC for Mr MaxVerdict:
15 June 2017
VERDICTS OF DOBSON J
R v O’BRIEN [2017] NZHC 1317 [15 June 2017]
Contents
INTRODUCTION ........................................................................................................................ [1] The defendants.............................................................................................................................. [2] The licensed gambling regime ..................................................................................................... [6] The factual background ..............................................................................................................[11] The charges ................................................................................................................................. [25] THE OPERATOR LICENCE CHARGES............................................................................... [38]
Charge 11 .................................................................................................................................... [38]
The representations ................................................................................................................ [45] Were the representations false? .............................................................................................. [63] Were Mr Coffey’s representations false?................................................................................ [64] Did these defendants know their representations were false? ............................................... [75] Were the false representations material to DIA’s decision? .................................................. [94] Value of the operator’s licence ............................................................................................. [105] Claim of right .........................................................................................................................[119] Charge 12 .................................................................................................................................. [121] Significant influence in the management of Bluegrass ....................................................... [140] Direction of Bluegrass’ grants process ................................................................................. [151] Value of control of the grants process ................................................................................... [178] Claim of right ......................................................................................................................... [181] The elements of charge 12 against Mr Coffey ...................................................................... [182]
THE VENUE LICENCE CHARGES ..................................................................................... [190] The elements of charges 13 to 15 ............................................................................................. [196] Michael O’Brien was the “real owner” of the venues ........................................................... [199]
Acquisition of the venues ......................................................................................................... [203] Hardy’s Bar (Charge 14) ...................................................................................................... [205] The Hardware Bar (Charge 13) ........................................................................................... [222] The Terrace Tavern (Charge 15) .......................................................................................... [233]
Challenges to elements and terms of the venue charges........................................................ [246] Absence of lawful licence for the Terrace Tavern................................................................ [246] Detail in particulars wrong................................................................................................... [267]
Did Michael O’Brien have a plan or scheme to conceal his involvement in class 4 venues?
.................................................................................................................................................... [276]
Was Mr Max a party to Michael O’Brien’s plan to conceal his involvement in the venues?
.................................................................................................................................................... [280] Has the Crown proved that Mr Max was aware of Michael O’Brien’s unsuitability? ...... [281] Mr Max’s SFO interviews..................................................................................................... [310] Responses to NZCT............................................................................................................... [318] Alternative rationale for Mr Max to hold the shares in Maximum Holdings .................... [329] Tax losses a legitimate reason .............................................................................................. [338] Involvement of Michael O’Brien’s lawyer ........................................................................... [346] Others similarly involved were not charged ......................................................................... [352]
The nature of the fraudulent device or stratagem ................................................................. [360] Was the concealment material to the DIA? ............................................................................ [366] Value of the venue licences ....................................................................................................... [370] Claim of right ............................................................................................................................ [373] Summary ................................................................................................................................... [374]
INTRODUCTION
[1] The defendants face charges under s 240 of the Crimes Act 1961 that they obtained benefits, or were parties to obtaining benefits, by false representations that were intended to deceive the Secretary for Internal Affairs (the Secretary). Those representations arose in dealings about applications for licences under the Gambling Act 2003 (the Act), and maintaining control over those licences.
The defendants
[2] Mr Michael O’Brien is an owner and trainer of race horses. He is based in Blenheim. He has considerable experience in the management of hotel and bar premises licensed under the relevant liquor licensing statutes and the operation of gambling businesses licensed under the Act.
[3] Kevin Coffey also has experience in operating licensed gambling businesses. In 1999 and 2000 he was a gambling inspector with the Department of Internal Affairs (DIA). After leaving the DIA he worked for the largest licensed operator of gaming machines, New Zealand Community Trust (NZCT). Since then, he has done a range of work as a self-employed contractor, including various roles in the management and governance of corporate societies licensed to conduct gambling. Mr Coffey was resident in the greater Wellington area at the time of the alleged offending.
[4] Paul Max has extensive experience in the hospitality industry, having owned and operated a variety of premises licensed under the Sale of Liquor Act 1989 and Sale and Supply of Alcohol Act 2012, including a number that have operated as venues licensed for gambling activities under the Act. Mr Max lives in Nelson.
[5] Mr Patrick O’Brien is Michael O’Brien’s father. He is a retired accountant who also lives in Blenheim and has substantial interests in the racing industry. In the first week of trial, I severed the charges against Patrick O’Brien, and adjourned the trial of the charges he faces.1 It is necessary to include references to his participation in the factual narrative but I have avoided opinions as to the nature of his
involvement.
1 R v O’Brien [2017] NZHC 303.
The licensed gambling regime
[6] Unless permitted under the Act, all other forms of organised gambling in public in New Zealand are prohibited. The Act recognises four categories of gambling activity that may be permitted, potentially the most pervasive being class 4 gambling, which involves the use of gaming machines. To lawfully operate gaming machine businesses, a corporate society must gain an operator’s licence from the DIA. Separate venue licences are also required for each of the premises in which an operator’s gaming machines are located.
[7] Those applying for class 4 gambling licences have to be constituted as corporate societies with appropriate authorised purposes. That concept is defined to include charitable purposes and non-commercial purposes that are beneficial to the whole or a section of the community. There is also a separate authorised purpose for
funding racing clubs, including the provision of stake money.2 Those involved in the
governance and management of a corporate society’s gambling business must be approved in the negative sense that the Secretary must refuse a licence application if not satisfied that any of the proposed key persons is suitable.3 The Secretary must also be satisfied that a key person proposed for a corporate society is not also a key person for a venue that is licenced as one at which the society is authorised to operate.4
[8] Assessment of individuals’ suitability is not confined to formal officeholders. The Act uses the concept of “key persons” which is defined, so far as applicants for an operator’s licence is concerned, to include persons who exercise significant influence in the management of a corporate society that is an applicant for, or holder of, a class 4 operator’s licence.5 Separate applications are required for class 4 venue licences. In such applications, profiles are required for the nominated venue manager, and venue operator. A somewhat different definition of “key persons”
applies in relation to a class 4 venue licence.6
2 Gambling Act 2003, s 4, definition of “authorised purpose”.
3 Section 52(1)(h).
4 Section 52(1)(j).
5 Section 4, definition of “key person”, para (a).
6 Section 4, definition of “key person”, para (b).
[9] The Act authorises the Secretary to issue standard forms for licence applications.7 In the same way for both operator’s licences and venue licences, those forms include the requirement to disclose all who are key persons, and to provide their relevant biographical details.
[10] Gambling regulations require any licenced corporate society to have a separate net proceeds committee (NPC),8 which is responsible for decisions on the distribution of grants. It has to comprise at least three of those who are key persons for the operator’s licence.
The factual background
[11] In the early 2000’s, Michael O’Brien was significantly involved in the affairs of a licensed operator, the Metro Charitable Trust (Metro Trust). After an investigation spanning the second half of 2005, the DIA refused to renew the Metro Trust’s class 4 operator’s licence with effect from January 2006, on grounds including that Michael O’Brien’s involvement in the affairs of that trust arguably
breached the provisions of the Act.9 The Metro Trust appealed that decision, which
meant that its operator’s licence remained in force until the appeal was resolved. In April 2006 the DIA separately proposed to cancel a venue licence for the Origins Sports Bar, which was a Metro Trust venue in Nelson. Again, the reason cited was Michael O’Brien’s unsuitability. That letter was copied to him.10
[12] Bluegrass Holdings Limited was incorporated on 2 June 2009. Patrick O’Brien, Mr Coffey and two others, William Monk and Douglas Owen, were its initial directors. Patrick O’Brien was the sole shareholder and the purpose of the formation of the company was to conduct the business of a class 4 gambling operator. It proposed to trade under the style of the Bluegrass Trust (Bluegrass).
[13] On 2 June 2009, Bluegrass applied to the DIA for a class 4 operator’s licence.
The application details of key persons did not list anyone other than the four
directors. There was no acknowledgement of involvement by Michael O’Brien.
7 Section 366.
8 Gambling (Class 4 Net Proceeds) Regulations 2004, reg 8.
9 SFO 284350.
10 SFO 291149.
Also on 2 June 2009, Maximum Holdings Limited (Maximum Holdings) applied for a class 4 venue licence for the Hardware Bar and Café (Hardware Bar) in Stokes Valley. Mr Max was identified as the venue manager responsible for operating the venue. The application was linked to Bluegrass’s operator licence application, anticipating that Bluegrass would contract with Maximum Holdings to operate
gaming machines owned by Bluegrass at the Hardware Bar venue.11
[14] When the terms of those applications were referred to gambling inspectors, a number expressed reservations because of suspicions that there were undisclosed links between the applicants and Michael O’Brien. Between August and October
2009 inspectors undertook interviews of each of the directors of Bluegrass, as well as Messrs Michael O’Brien and Max. Rob Brook, a senior gambling inspector with the DIA, produced an investigation report into the Bluegrass applications in or about October 2009.12 The report concluded that no material links between Michael O’Brien and Bluegrass or Michael O’Brien and Maximum Holdings had been discovered.
[15] Both Patrick and Michael O’Brien denied in their separate interviews that Michael O’Brien had any material part in the application on behalf of Bluegrass. They similarly denied that there was any plan for him to be involved in its management, if the licence was granted. In the interview with Mr Coffey on
26 August 2009, he acknowledged a level of involvement by Michael O’Brien that was inconsistent with all the other information provided to the investigators by the other interviewees.13 In emails to the DIA during August and September 2009, Mr Coffey also volunteered information about Michael O’Brien having a level of involvement in the planning and organisation of Bluegrass. That inconsistency was not reflected in the terms of the report prepared by Mr Brook.
[16] By late November 2009, Jarrod True, the Hamilton solicitor who was acting on Bluegrass’s application for an operator’s licence, was pressuring the DIA to make a decision. John Currie, the national licensing officer with delegated authority from
the Secretary to make the decision on granting or declining the licence applications,
11 SFO 279975.
12 SFO 270330.
13 SFO 202749.
convened a meeting with Mr Brook and Messrs Patrick O’Brien, Coffey and True on
18 December 2009. In the course of that meeting, Patrick O’Brien gave Mr Currie an unequivocal assurance that Michael O’Brien was not involved in the Bluegrass operation. Mr Currie acknowledged a measure of pressure by the time of that meeting to make a decision, and his evidence was that at the end of the meeting he indicated that the application would be granted. The class 4 operator’s licence and a venue licence for the Hardware Bar issued shortly thereafter on 22 December 2009.
[17] Thereafter a number of additional venue licences were granted for bars that contracted to house Bluegrass gaming machines.
[18] For a period of years before Bluegrass was formed and obtained an operator’s licence, Michael O’Brien operated as a lobbyist for racing clubs, who would pay him fees for procuring grants from gaming trusts to fund the operations of the racing clubs, and in particular stakes money. Through the period to which the charges relate Michael O’Brien had a practice of invoicing the racing clubs who were prepared to retain him for this work before the start of the racing season in June or July each year and, subject to being paid, or receiving assurances that he would be paid, he would then procure grants from a number of trusts operating class 4 gambling licences.
[19] Whilst it operated, the Metro Trust was one of these. Michael O’Brien also had contacts with individuals with a measure of influence over grants decisions in such entities, including the largest, NZCT. He also facilitated grants from Infinity Trust, the Pelorus Trust and The Trusts Community Foundation.
[20] Among the documents adduced in evidence were various schedules and spreadsheets for the 2010-2011 to 2013-2014 racing years identifying by month and amount the extent of grants to be applied for by an identified list of racing clubs, with identified trusts. The amounts involved were substantial and, for example a master list for the 2012-2013 racing year identified grants for a range of harness
racing and thoroughbred clubs totalling just short of $7,000,000.14
14 SFO 40991.
[21] In the period to which the charges relate, Michael O’Brien charged fees for procuring grants for the clubs that retained him of about one third of the grants that the clubs received. The evidence on Michael O’Brien’s arrangements is considered in more detail in dealing with the Bluegrass grants process at [151] to [177] below.
[22] Lingering suspicions remained that Michael O’Brien had a position of influence in Bluegrass, and/or relevant venues. In mid 2012, a Serious Fraud Office (SFO) investigation was undertaken, including intercepting telephone conversations involving Michael and Patrick O’Brien, and Roebyna Bak, the chief executive officer of Bluegrass between September 2012 and March 2013. The investigators also reconstructed the content of facsimile messages sent and received by Michael O’Brien.
[23] The investigation led to the Bluegrass operator’s licence and what were by then numerous venue licences being suspended and ultimately cancelled.
[24] The present charges were laid on 27 November 2014.
The charges
[25] Between them, the defendants faced 15 charges. Two charges arise (charges
11 and 12) out of the application for Bluegrass’s operator’s licence and the manner in which that licence was operated after it was granted. The defendants facing those operator licence charges are Michael and Patrick O’Brien, and Mr Coffey.
[26] The remaining 13 charges were brought against Michael O’Brien and Paul Max, and related to their parts in the alleged concealment of Michael O’Brien’s interest in the management, ownership or operation of numerous venues for which class 4 venue licences had been granted.
[27] On 24 March 2017, after four weeks of trial, Mr Burston advised that the Crown intended to not offer any evidence (or any further evidence) in relation to the first 10 of the charges involving applications for venue licences. The decision was described as a pragmatic one, given the disproportionate extent of additional evidence that would need to be adduced to make out the elements of those charges as originally contemplated. Cross-examination of a departmental witness, Mr Currie,
had revealed a substantial extent of retrospectivity in the grants of venue licences. To establish the lawful status of the venue licences in issue during the period to which the first 10 charges related would involve extensive new evidence. The Crown’s decision was conveyed on terms that it did not impact on its case on the remaining three venue charges (charges 13 to 15).
[28] On 24 March 2017, I discharged Messrs Michael O’Brien and Mr Max on charges 1 to 10 inclusive.15
[29] As to the charges in relation to the operator’s licence, charge 11 alleges that between 2 June and 22 December 2009 Michael O’Brien, Patrick O’Brien and Mr Coffey, by deception and without claim of right, obtained a benefit for Bluegrass, namely its class 4 operator’s licence, by false representations made with intent to deceive the Secretary, knowing the representations were false in a material particular or being reckless as to whether they were false in that way. That period runs from the date of incorporation of Bluegrass to the date on which the DIA granted the operator’s licence.
[30] The Crown case on this charge is that there was a common criminal enterprise between those three defendants to conceal from the DIA that Michael O’Brien was a person with significant influence in the management of Bluegrass. Concealing Michael O’Brien’s involvement enabled Bluegrass to obtain the operator’s licence, which allegedly it would not have obtained if Michael O’Brien’s involvement was disclosed.
[31] Particulars of this charge were specified in the following terms:
1.A false representation made in an application dated 2 June 2009 for a class 4 operator’s licence for Bluegrass submitted to the DIA that the only key persons, or other persons who may have a significant influence in relation to the management of Bluegrass, were Patrick
O’Brien, Kevin Coffey, William Monk and Doug Owen.
15 Criminal Procedure Act 2011, s 147.
2.A false representation made in an application for a class 4 venue licence dated 2 June 2009 and submitted as part of the class 4 operator’s licence application for Bluegrass to conduct class 4 gambling under the Gambling Act 2003 for the Hardware Bar that the only venue manager, venue operator, or other person who may have a significant interest in relation to the venue was Paul Max (venue manager) and Maximum Holdings (venue operator).
3.A false representation made orally by Patrick O’Brien during an interview with the DIA on 19 August 2009 that Michael O’Brien had nothing to do with Bluegrass Holdings Limited.
4.A false representation made in an email from Mr Coffey to the DIA on 19 August 2009 that he was not aware that Michael O’Brien had anything directly to do with Bluegrass.
5. A false representation made in an email Mr Coffey to the DIA on
20 September 2009 that to his knowledge Michael O’Brien had no direct involvement with Bluegrass other than doing some organising or providing advice for Patrick O’Brien.
6. A false representation made orally by Michael O’Brien during an
interview with the DIA on 20 October 2009:
a. That he had no involvement in Bluegrass at all and had nothing to do with Bluegrass.
b. That he had no venues that he had any interest in.
7.A false representation made orally by Patrick O’Brien to the DIA at a meeting on 18 December 2009 that Michael O’Brien was not involved in Bluegrass.
[32] The second charge relating to Bluegrass’s operator’s licence, charge 12, arises in the period from the date of its licence application on 2 June 2009 until the
date on which the DIA’s decision not to renew Bluegrass’s operator’s licence took effect on 31 July 2013. The charge alleges that Michael and Patrick O’Brien and Mr Coffey, by deception and without claim of right obtained or retained control over property of Bluegrass (comprising the net proceeds of the gambling conducted under its operator’s licence) by a fraudulent stratagem used with intent to deceive the DIA. As against Mr Coffey, this charge must be limited to the period in which he was a director of Bluegrass, from which position he resigned in June 2010.
[33] This charge alleges that the defendants concealed from the Secretary Michael O’Brien’s significant influence in the management of Bluegrass and the direction of the grants process. Michael O’Brien’s position allegedly enabled him to exert control over distributions of the net gambling proceeds to entities that retained him to procure grants for them. The Crown contended that Michael O’Brien’s charges of approximately one third of the amount of the grants that he would procure for the racing clubs, amounted to more than $11.57 million in the period from 2007 to 2013, a longer period than that to which the charges relate.
[34] The remaining three charges involve applications for venue licences for licensed premises that were used as venues for gaming machines. The essence of the charges is that Michael O’Brien and Mr Max used a fraudulent device or stratagem with intent to deceive the Secretary as to the ownership of shares in companies that were the operators of those (and other) class 4 venues. On these charges, the Crown relies on a component of the definition of a key person in the Act in relation to venue
licences, namely:16
any other person whom the Secretary reasonably believes to have a significant interest in the management, ownership, or operation of a venue operator …
[35] In two charges (charges 13 and 14), the allegation relates to the shareholding in Maximum Holdings. This shareholding was represented in documents filed with the DIA as being owned by Mr Max, but a deed of trust dated July 2007 acknowledged that he was holding the shares as legal owner for Michael O’Brien’s
beneficial interest. If the Crown could not prove the accuracy of the date, and the
16 Gambling Act 2003, s 4, definition of “key person”, para (b)(iva). This part of the definition was
amended in 2015.
effect of that trust deed, then its alternative proposition was that the deed only formalised an arrangement that applied in any event throughout the period to which the charges related.
[36] The remaining venue charge (charge 15) related to representations made as to the ownership of the shares in The Oldest Kiwi Pub Limited (TOKP). A deed of trust to similar effect in respect of the shareholding in that company was dated August 2007.
[37] The commencement of the periods to which these three venue charges relate range from December 2009 to December 2010. All the periods end on 6 December
2010. The allegations are that the deception was to obtain or retain by fraudulent device or stratagem a benefit for the respective operators of the licences that contracted with the venue operators. Bluegrass was the venue operator in charges 13 and 14, and NZCT in charge 15.
THE OPERATOR LICENCE CHARGES Charge 11
[38] The Crown submitted that the elements it was required to prove to obtain convictions on charge 11 were as follows:
· each of the defendants charged made a representation, or was party to a representation made to the DIA about Michael O’Brien’s non-involvement with Bluegrass as that related to its application for a class 4 operator’s licence;
· the relevant defendant knew the representation was false, or was reckless as to whether the representation was false in a material particular;
· the defendant intended to deceive the DIA;
· the falsity of the representation or representations made or could well have made a difference to the DIA’s decision whether to grant an
operator’s licence to Bluegrass, and that the particular defendant knew the falsity was material in that sense;
· the false representation or representations were material to the DIA’s
decision;
· the value of the licence exceeded $1000; and
· Bluegrass had no claim of right to the operator’s licence.
[39] In both its opening and closing submissions the Crown characterised its case under charge 11 as one of a common criminal enterprise between the three defendants charged. This was taken by Mr Squire to indicate reliance on s 66(2) of the Crimes Act 1961 which triggered the one material difference between the parties as to the nature of the elements required to be proved for the Crown to make out charge 11.
[40] Mr Squire submitted that the allegation of a common criminal enterprise required the Crown to prove that Michael O’Brien and Mr Coffey formed a common intention to prosecute an unlawful purpose and for each of them to intend to assist the other in carrying that out. For this to be an additional necessary element for the Crown to prove, the Crown must have elected to rely on s 66(2) to the exclusion of the possibility of the charge being proven by the alternative route of s 66(1).
[41] This is not a case in which the alleged factual circumstances or the terms of the charges preclude the Crown from proceeding under either ss (1) or (2) of s 66. Indeed, in his closing comment on the elements required to be proved, Mr Squire submitted, in addition to disputing involvement by Michael O’Brien and Mr Coffey in the requisite manner under s 66(2), that the Crown also could not prove that each of the defendants acted as a party to the other in the sense envisaged by s 66(1) of the Crimes Act.
[42] The nature of the Crown’s case under s 66 was complicated by Mr Burston signalling reliance on the co-conspirator’s rule to broaden the admissibility of evidence that would otherwise be inadmissible hearsay against a particular
defendant. On Mr Corlett’s application I provided a ruling at an early stage of the trial requiring the Crown to give notice of the documents in respect of which it might seek to rely on the co-conspirator’s rule. Submissions in relation to that ruling traversed the nature of the Crown’s case under s 66. However, as the Court of Appeal has made clear, the possible application of the co-conspirator’s rule is no more than a rule of evidence and can have no impact on the scope of the elements of
any particular charge that the Crown is required to prove.17
[43] I do not consider the circumstances of this charge are amenable to the invocation of s 66(2). I do not treat the Crown’s reference to a common criminal enterprise as committing it to reliance on s 66(2), and certainly not exclusively.
[44] Charge 11 is, if at all, a case involving party liability under one or more of the forms of conduct defined in s 66(1). I do not consider that Michael O’Brien’s defence has been adversely affected in any material way by the focus Mr Squire gave to the Crown references to a common criminal enterprise.
The representations
[45] The prescribed application form for a new class 4 operator’s licence required the applicant to identify all key persons. In addition to trustees or other officers of a corporate society and the Chief Executive, the terms of the form extended key persons to those who exercise significant influence in the management of the society. The Bluegrass application cited as key persons the four directors, Messrs Patrick
O’Brien, Coffey, Monk and Owen.18
[46] After the application was received, the DIA circulated details of the proposed trust including the identity of key personnel to officers who monitored compliance by licenced operators. Among the concerns raised was that Patrick O’Brien may bring involvement by Michael O’Brien with him. Patrick O’Brien was interviewed by Mr Brook and a senior investigator Geoff McCambridge on 19 August 2009. In response to a question as to whether Michael O’Brien was involved in any way he
responded “No, he’s got nothing to do with it.” Later in the interview Patrick
17 Ngamu v R [2010] NZCA 256, [2010] 3 NZLR 547 at [29].
18 SFO 270491.
O’Brien claimed that it was him that was doing all the work and that if he had wanted Michael O’Brien to participate he would have brought him in as a trustee.19
[47] Mr Coffey’s relevant representations to DIA began on 19 August 2009. Mr Coffey had been asked to be a director of Bluegrass by Michael O’Brien in May
2009 and was identified as such in the application for an operator’s licence that was
lodged in June 2009. After a telephone call from Michael O’Brien on 19 August
2009, Mr Coffey sent an email that same day to Mr McCambridge, whom he knew to be one of the DIA officers involved in assessing the application. It began with the following: 20
I understand that you and Robin Brooke have been interviewing the directors of the proposed Bluegrass Trust. I assume someone will interview me eventually but I am disappointed all the other directors have been contacted and not myself. I am also a little frustrated at the questions that were asked of Pat O’Brien yesterday. As you are aware I have passed on information regarding these matters on four separate occasions (to various DIA) touching specifically on the questions asked of Mr O’Brien. Twice I have asked to speak with someone to detail exactly what is happening here.
I therefore provide the following information in relation to Bluegrass Trust (in writing so you have it on record). Please pass this information on to Robin:
1.I know Mike O’Brien, I was introduced to him by Mike Knell from NZCT several years ago (happy to explain the circumstances). I am aware of the historical “metro” issues but I am not aware that he has anything directly to do with Bluegrass (apart from obviously being Pat’s son and involved in harness).
2.I was approached by Pat to assist with the regulatory and compliance matters and getting the licence. I assume he may have been put on to me by Mike. I had no involvement with the application other than arranging the finance offer. Everything else was done by Pat and Jarrod True (who I only met once several years ago in relation to a venue moving from Perry Foundation).
[48] Mr Coffey’s email also discussed the concerns of the racing industry to be able to use grants from the gaming industry for stake money and that Mr Coffey saw
his involvement as attempting to help that perceived difficulty.
19 SFO 291338 and 291340.
20 SFO 57125.
[49] Mr Coffey was then interviewed by DIA officer Geoff Owen on 26 August
2009. Mr Coffey stated that Pat O’Brien had asked him to assist with the “regulatory aspects of the trust”. During the interview Mr Coffey distanced himself from firsthand knowledge of the extent of Michael O’Brien’s involvement by using language such as “I presume” and “I imagine”. Mr Coffey’s response to Mr Owen,
as to his knowledge of Michael O’Brien’s involvement in Bluegrass was:21
KC Certainly I think, he’s certainly been involved in helping Pat. I presume he set the thing up. I mean he ran a trust. Pat didn’t strike me as the sort of guy that would you know rush off and do all the donkey work. But they had been using Jarrod True up in Auckland. And Jarrod I believe was the solicitor for Perry Foundation. I’d met him once before when a venue was changing hands between trusts. In fact it was the Caversham stuff with NZCT. And so how much involvement Mike’s had on that but yeah he’s his son. He works for him. I believe he works for harness, some harness clubs, south island harness clubs doing something along those lines. So I would imagine that yeah his involvement may have been behind the scenes um or helping Pat. But directly being the person behind Bluegrass no.
[50] Mr Coffey stated that the trust had been Pat O’Brien’s idea and he presumed that Pat had sought his involvement because Michael O’Brien would have mentioned Mr Coffey to Patrick O’Brien.22 Mr Coffey told Mr Owen that Patrick O’Brien had done “the financials” (that is, forecasts of financial performance) and that when DIA had contacted Mr Coffey about elements that were missing, Mr Coffey had referred the matter back “to Pat”.23
[51] Mr Coffey explained to Mr Owen that he did not see his role as being a long term one, but rather to assist in getting the trust established. That theme was repeated in a subsequent email he sent to Mr Owen on 20 September 2009. The email began with suggestions of frustration on the part of those at Bluegrass at
delays in progressing the application: 24
Obviously all parties at my end wish to progress matters and I wish to conclude my contracted tasks so I can move on.
21 SFO 202755.
22 SFO 202754.
23 SFO 202778.
24 SFO 202649.
[52] Mr Coffey requested a further meeting with Mr Owen and listed the items he wished to discuss, including the Bluegrass Trust. The email continued:
I am told by Jarrod True that the department have concerns regarding the involvement of Mike O’Brien and the “relationship between the operator and the trust”.
In relation to Mike O’Brien I have already advised that to my knowledge he has no direct involvement with the Trust other than doing some organising or providing advice for Pat or as an interested party with regard to harness racing. However for some reason the department has a fascination with Mike so I felt it prudent to make enquiries regarding his involvement with the Hardware Bar and history with gaming activities. I have not been able to determine any “Key Person” relationship between Mike and the Hardware Bar. …
Jarrod True was the solicitor instructed on behalf of Bluegrass and was processing its application and dealing with DIA on its behalf.
[53] It was not part of the Crown case in its opening that Mr Coffey attended a meeting at DIA in Wellington on 18 December 2009. Particular 7 to charge 11 is that Patrick O’Brien made a false representation at that meeting that Michael O’Brien was not involved in Bluegrass.
[54] I accept Mr Coffey’s evidence that he was present at that meeting. When he cross examined the DIA officers who were present, Mr Currie and Michael Hill, neither had a positive recollection of his presence but they were either prepared to accept his statement that he was present, or at least were not prepared to state that he was not present.
[55] Mr Coffey’s evidence was to the effect that he made similar statements at the
18 December 2009 meeting about the nature of Mr Michael O’Brien’s involvement to those in his 19 August email and in the course of his 26 August interview with Mr Owen. Such statements would have been directly contradictory to assurances repeated at the meeting by Pat O’Brien that Michael O’Brien had nothing to do with Bluegrass. Mr Coffey could not explain why he did not contradict those statements
when they were made at the meeting.25
25 NOE 2241-2242.
[56] Michael O’Brien was interviewed by DIA officer Mr Brook on 20 October
2009. In response to an initial question as to how involved he was in Bluegrass, he said: 26
Zero. I had no involvement in it at all. … [H]e’s [Patrick O’Brien] asked me a couple of things in conversation being his son, that’s all … Minor things like where does he get insurance, where does he get finance and that’s about it … I don’t want to have anything to do with it.
[57] Later in the interview, Michael O’Brien gave answers suggesting that he had no interest in being involved and knew only as much as his father had mentioned to him in discussions. Michael O’Brien stated that he could not help his father with arranging finance, and that none of those involved in setting up the trust were “stepping up for him.” At one point Michael O’Brien said that he couldn’t be bothered, and “Besides if I had anything to do with it, you fellas would just you
know, start all over again”.27
[58] In context, it is clear that Michael O’Brien’s reference to the DIA “start(ing) all over again” was a reference to the DIA’s investigations into his previous involvement in the Metro trust.
[59] Particular 2 to charge 11 alleges a false representation related to the application for an operator’s licence arising from the contemporaneous application for a class 4 venue licence for the Hardware Bar. The objective of concealing Michael O’Brien’s involvement in Bluegrass to help its operator’s licence application would have been at risk if there was any acknowledged connection between Michael O’Brien and any venue in which Bluegrass was proposing to place gaming machines. In short, effective concealment of Michael O’Brien’s involvement had to extend beyond the management of Bluegrass to positions of influence over any venues that Bluegrass proposed.
[60] In his 20 October 2009 DIA interview, Michael O’Brien denied having an interest in any venues and denied knowing where his father was going to get the
venues in which Bluegrass would operate gaming machines.
26 SFO 202550-202551.
27 SFO 202565, 568, 569, 578, 579.
[61] Mr Coffey’s contribution included the following paragraph from his
19 August 2009 email to Mr McCambridge: 28
I have had nothing at all to [do] with sourcing any venues for this trust. I have never had anything to do with the Hardware bar (the venue submitted with the license). I know Paul Max (operator) but have never spoken to him about it. I believe Mike knows Pat [sic = Paul Max] but don’t know exactly how this venue was chosen or signed. I am aware Mike Knell has told someone in DIA that I was involved but this is [a] lie …
[62] After his meeting with Mr Owen, Mr Coffey’s 20 September 2009 email also excluded the prospect that Michael O’Brien was a key person for the Hardware Bar, in the terms quoted at [52] above.
Were the representations false?
[63] I am satisfied beyond reasonable doubt that Michael O’Brien’s representations to the DIA about his non involvement in Bluegrass were false. I find that he was the prime mover in initiatives to form Bluegrass and for it to apply for an operator’s licence. He recruited Mr Coffey as a director for Bluegrass and Mr Coffey’s handwritten notes and emails show that at least the substantial majority of Mr Coffey’s interactions in the period between Michael O’Brien’s initial request to him and the licence being granted, were with Michael O’Brien. For example:
·It was Michael O’Brien who called Mr Coffey initially on 1 May and subsequently on 27 May 2009. He indicated that he was planning a new gaming trust, was asking a person with appropriate expertise to draw up a trust deed that would recognise racing and stakes money as authorised purposes, and asked Mr Coffey to be a director.
·Mr Coffey’s inquiries about the prospect of financing for the trust were made with UDC Finance and South Canterbury Finance in liaison with Michael O’Brien.
·Michael O’Brien called Mr Coffey before the latter contacted the DIA to address the topic of Michael O’Brien’s claimed non-involvement with the trust.
28 SFO 57125.
· In August 2009 Michael O’Brien arranged forecast financial statements to be
prepared from workings he had prepared.29
·Michael O’Brien negotiated with the BNZ as an alternative source of finance (referred to at one point by the BNZ as Patrick O’Brien’s “staff”). I am satisfied that numerous communications about the Bluegrass financial projections and dealings with the BNZ were undertaken by Michael O’Brien, using an email address of Patrick O’Brien. In this regard I accept the inference invited by the Crown from a faxed version of one of the emails from Patrick O’Brien’s gmail address being found at Patrick O’Brien’s home, having been faxed from Michael O’Brien’s fax machine. That is consistent with Michael O’Brien using Patrick O’Brien’s email to give the impression to the recipient that the email was dispatched by Patrick O’Brien, and then providing the content of the email to Patrick O’Brien by faxing him a printout of the email.
·In September 2009 Michael O’Brien arranged personal loans that he borrowed from Kaikoura, Blenheim and Nelson racing clubs for a total of
$300,000. This borrowing was to provide Bluegrass with equity that would obviate the need for directors to provide personal guarantees for more substantial borrowings from commercial lenders. In a note marked “Confidential” sent by Michael O’Brien to the person with whom he was dealing at the Kaikoura Trotting Club he explained that the club could not advance its $100,000 contribution to this loan directly to Bluegrass as that would preclude the club receiving funding from Bluegrass. The alternative structure arranged by Michael O’Brien was that he would borrow from the club, would advance the amount to Patrick O’Brien, and Patrick O’Brien would then advance it to Bluegrass enabling Patrick O’Brien to deny that Bluegrass had been funded by the trotting club and, if pressed, that Patrick O’Brien had funded his advance to Bluegrass by way of a loan from Michael
O’Brien.30
29 SFO 57107, and compare SFO 285245-285247.
30 SFO 49297.
· In electronic diary notes maintained by Mr Coffey an update about his work
on the Bluegrass Trust as at 12 June 2009 noted as a “to do” item:31
- Meet with fellow directors (MOB wants to meet first).
In the context of the ongoing dialogue between the two of them around that time, his reference to Michael O’Brien wishing to meet separately with Mr Coffey before an initial meeting of the directors is consistent with Michael O’Brien orchestrating the formation of the trust and how it would conduct its business.
· Michael O’Brien facilitated an initial meeting of the directors of Bluegrass on
10 September 2009. I am satisfied that Michael O’Brien was responsible for preparing the minutes of that meeting and also for preparing in advance a list of matters to discuss.32
· Michael O’Brien arranged premises for Bluegrass to occupy in Blenheim.
The minutes of the 10 September 2009 board meeting attribute the sourcing of a prospective office to the chairman (Patrick O’Brien) but I am satisfied that that work was carried out by Michael O’Brien. The minutes do not acknowledge Michael O’Brien’s presence at the meeting when I am satisfied
that he was present.33
·I am also satisfied that Michael O’Brien orchestrated the contracts with venues at which Bluegrass placed its gaming machines. Michael O’Brien enjoyed effective control over the venues that were being managed by Mr Max, for companies of which Michael O’Brien was the beneficial owner.34 He also used existing relationships with the managers of or a substantial majority of the other venues that were signed up by the Bluegrass
Trust.
31 SFO 57183.
32 SFO 38551-38556 and 60342-60344.
33 See [129] below.
34 See [199]-[202] below.
·In the period to which the charges relate, Michael O’Brien pursued the acquisition of further bars that would be appropriate as venues for gaming machines without any thorough due diligence and I accept John Todd-Lambie’s observation that Michael O’Brien was prepared to invest in bars that were in other respects not attractive business propositions where the venues had either an established track record or the prospect of being
desirable venues for gaming machines.35
·The Crown called a Senior Document Examiner, Patricia James who analysed an extensive sample of documents. Her unchallenged evidence was that a substantial number of documents relating to the business of Bluegrass that purported to be signed by Patrick O’Brien were in fact signed by Michael O’Brien. Examples of such documents included correspondence with banks,36 a December 2009 letter to a potential private lender of funding
for Bluegrass,37 and handwritten instructions to external accountants acting
for Bluegrass that were written and signed off in Patrick O’Brien’s name.38 A review of a broad sample of such documents readily justifies the inference that Michael O’Brien was directing the business of Bluegrass, but concealing his involvement in doing so.
Were Mr Coffey’s representations false?
[64] Mr Coffey argued that in assessing the meaning of his 19 August 2009 email, its content should be considered together with the responses on the topic of Michael O’Brien’s involvement in Bluegrass provided in the interview that followed on 26 August 2009. The validity of that approach is questionable because the terms of the email suggest that he was unhappy at not having been interviewed, and no arrangements had been made for that to occur. However, there is no evidence that DIA placed any discrete reliance on the content of the 19 August email before the interview occurred so that the meaning reasonably conveyed by its content can be
assessed in light of the oral statements made in the interview a week later.
35 NOE 2035-2037.
36 SFO 33140 and 33196.
37 SFO 41341.
38 SFO 280717-280718.
[65] The 19 August email stated that Mr Coffey was not aware of Michael O’Brien having anything directly to do with Bluegrass. The acknowledgement of his familial connection with Patrick O’Brien and that Michael O’Brien was “involved in harness [racing]” did not relevantly qualify the statement of his not being aware of any direct involvement. The 26 August statement to Mr Owen was to different effect, namely Michael O’Brien had been involved in a role helping his father. In context, Mr Coffey’s statement that he presumed Michael O’Brien had set the thing up would convey that Michael O’Brien had carried out mechanical aspects of the establishment at his father’s direction. It is consistent with that meaning that Mr Coffey’s answer acknowledged that Michael O’Brien worked for Patrick O’Brien and that Mr Coffey “imagine[d] that Michael’s involvement may have been behind the scenes helping Pat”. Consistently with the important statement in the 19 August email, the response about the nature of any involvement of Michael O’Brien concluded with an unequivocal statement that he was not directly the person behind Bluegrass.
[66] The relevant representation in Mr Coffey’s 20 September 2009 email is consistent with the meaning conveyed by the two earlier ones. With the qualifier of what was “to my knowledge”, he stated that Michael O’Brien had no direct involvement with Bluegrass “other than doing some organising or providing advice
for Pat”.39
[67] The effect of those three representations was that Michael O’Brien’s involvement was peripheral, and implicitly that his involvement was less than having any significant influence over the management or governance of Bluegrass. I am satisfied beyond reasonable doubt that those representations were false. In the period between the formation of Bluegrass and the granting of an operator’s licence to it on 22 December 2009, Michael O’Brien exercised a dominant level of control, and was the driving force behind the establishment of Bluegrass.
[68] Mr Coffey’s description of his own involvement in preparing financial
forecasts for Bluegrass’ application was false in that he attributed to “Pat” the
involvement he knew that Michael O’Brien had in the preparation of forecasts, by
39 SFO 202649.
Mr Coffey’s own dealings with him. Mr Coffey referred to getting comments from Shannon Gibson and forwarding them to Patrick O’Brien. His 4 August 2009 email in fact went directly to Michael O’Brien.40 Mr Coffey’s email to Michael O’Brien commenced “Hi Mate”, and referred to his awareness that Michael O’Brien had experience in the practical work of running a trust, but volunteered his assistance if needed. It reflects part of an ongoing working relationship.
[69] It was also false for Mr Coffey to represent that there was no “key person” relationship between Michael O’Brien and the Hardware Bar, as stated in Mr Coffey’s 20 September 2009 email. That email claimed that Mr Coffey had made inquiries on this topic and the statement was qualified with the preamble that he had not been able to determine any such relationship.
[70] It was also, at best, economical with the truth for Mr Coffey to distance himself from knowledge of the management of the Hardware Bar in the terms he did in his earlier 19 August 2009 email (quoted at para [61] above). In August 2006, Mr Coffey had provided Michael O’Brien and Mr Max with summary details of a number of class 4 licenced venues that were or might be available for acquisition. In that email Mr Coffey identified with NZCT’s position, suggesting that he was keen to broker purchases by the recipients of his email on terms that the venues would
either stay with or go to NZCT as their operator.41 Mr Coffey’s email referred to a
meeting he had just held, at least with Michael O’Brien. From the context it seems likely that Mr Max was also present but the email in any event recorded Mr Coffey’s intention to discuss the details he was providing with Mr Max the following day.
[71] The Hardware Bar was the first of an initial group of venues that were detailed in Mr Coffey’s email. The last of some general notes at the end of the email were that it was “our” (presumably NZCT’s) preference that all hotels be managed by MaxLam. That was a hotel management company owned by Mr Max and
Mr Todd-Lambie.
40 SFO 57102.
41 SFO 56848-56849.
[72] Michael O’Brien’s reply implies both that he was interested in acquiring premises, and that he had experience in owning class 4 venue premises. It included:42
… for the money involved I’d be better off buying the Hardware Bar (possibly also the Jolly Miller if you’re correct about possible MSA and price negotiation through buying both; although I’ve been stung a couple of times with bars that “break even”) …
[73] I deal in more detail with the ownership and control of the Hardware Bar in considering charge 13, the venue charge in relation to that venue.43
[74] A more accurate statement of Mr Coffey’s awareness of the management and ownership of the Hardware Bar would have required him to acknowledge that he had introduced the prospect of acquiring that venue to Michael O’Brien and Mr Max in August 2006. Further, that he was aware (at least at that time) that venues owned by Michael O’Brien were being managed by MaxLam.
Did these defendants know their representations were false?
[75] I am satisfied beyond reasonable doubt that Michael O’Brien knew his representations about his non involvement in Bluegrass were false from the outset. He was aware that the adverse views adopted by DIA in relation to his involvement in the Metro Trust would be highly likely (if not certain) to result in his being found unsuitable to be a key person in Bluegrass when it applied for an operator’s licence. His initiative to use Bluegrass as a vehicle for generating funds for the racing industry therefore depended on hiding his own involvement from DIA.
[76] Logically, Michael O’Brien’s strategy would only be successful if the others involved in Bluegrass with whom the DIA were likely to inquire also treated him as being excluded from those who ought to be identified as key persons in its application for an operator’s licence. Those others might treat him as not involved either because they were unaware of the true extent of his involvement, or if they were aware of the extent of his involvement, because they realised that they would
have to deny or downplay it if and when they were asked.
42 SFO 56847.
43 See [222]-[232] below.
[77] I am satisfied beyond reasonable doubt that Mr Coffey knew that the representations he made about Michael O’Brien’s subordinate involvement in the establishment of Bluegrass, supposedly at the request or direction of his father, were materially misleading and therefore false in the requisite sense.
[78] In other contexts, the differences between the type of involvement Mr Coffey attributed to Michael O’Brien, and the level of Michael O’Brien’s involvement that I have found Mr Coffey was aware of might be seen as relatively subtle, or a matter of degree. However, the context here was whether Michael O’Brien was a person who exercised sufficient influence in the management of a corporate society to bring him within the concept of key persons who had to be approved as suitable by DIA. The level of involvement was therefore a focused inquiry. Mr Coffey’s representations would assure investigators that the relatively low level of Michael O’Brien’s involvement as described by Mr Coffey kept Michael O’Brien outside the definitions of key persons, whereas the factual extent of Michael O’Brien’s involvement brought him very much within that definition. Michael O’Brien was undertaking tasks that would ordinarily be undertaken by directors of a corporate society and I am satisfied that it would have been apparent to Mr Coffey that Michael O’Brien was pursuing various initiatives without being instructed to do so by his father, or being directed or constrained by the Board.
[79] I am satisfied that throughout the period from Michael O’Brien’s initial
contact with Mr Coffey until the grant of the operator’s licence on 22 December
2009, Michael O’Brien and Mr Coffey shared an understanding that disclosure of the true extent of Michael O’Brien’s involvement would be very likely to cause the application to be declined.
[80] I am mindful that their approaches were not entirely consistent. When interviewed, Michael O’Brien denied any involvement or any interest in being involved. Mr Coffey was much less absolute. He described a peripheral level of involvement of a type that would be unlikely to excite further research as to whether that limited involvement meant that Michael O’Brien would be a key person. One instance of Mr Coffey’s downplaying Michael O’Brien’s role arose in his initial discussions with DIA when he claimed that Patrick O’Brien had made the initial contact with him and asked him to become a director. When confronted with his
diary notes, Mr Coffey conceded in evidence that the initial contact had actually been with Michael O’Brien. Mr Coffey’s claim that his initial recollection was simply a mistake is not credible given the extent of dealings he went on to have with Michael O’Brien, and the lack of evidence supporting any material ongoing dealings with Patrick O’Brien.
[81] Similarly, Mr Coffey’s mistake in saying to Mr Brook on 26 August 2009 that his dealings with “financials” had been with Patrick O’Brien, when that exchange only three weeks earlier had been with Michael O’Brien demonstrate a deliberate attempt to downplay the relevant involvement of Michael O’Brien.
[82] There are grounds for the inference the Crown invites that there was an explicit agreement between Michael O’Brien and Mr Coffey that all communications with the DIA about the application should deny any acknowledgement of the true extent to which Michael O’Brien was involved.
[83] There is certainly scope for the inference that Michael O’Brien and Mr Coffey shared an awareness that Michael O’Brien’s participation in various aspects of the gambling industry would need to be carefully managed. In an email exchange on 10 and 11 June 2009 initiated by Mr Coffey and with Michael O’Brien’s responses interpolated in the original text, Mr Coffey addressed matters involved in the establishment of Bluegrass. He suggested an informal meeting of the
directors and a “long overdue catch up with you”. Mr Coffey stated:44
There are a couple of things to talk through such as the spotlight it may put on your operation, MaxLam’s position, venue payment considerations (grouping etc) etc. Like most things it’s about timing and relationships.
[84] Michael O’Brien’s response was that it would be great if Mr Coffey could come the night before a proposed meeting with directors because he wanted to catch up with Mr Coffey: 45
Prior to meeting other directors … mainly because I want to cover off my operation and just wise you up re Pats position …
44 SFO 57184.
45 SFO 285122-285123.
[85] That exchange occurred during a period of relatively extensive dealings between the two. Mr Coffey believed that the proposed meeting had occurred.46
[86] Mr Coffey was pressed at some length in cross examination on his awareness throughout the period from 2006 to 2010 of Michael O’Brien’s involvement in the ownership and management of class 4 venues. Mr Coffey was unconvincing in denying awareness of Michael O’Brien’s involvement in a number of transactions involving such venues. The pattern of his responses when forced to acknowledge an awareness at the time of such transactions that Michael O’Brien was involved in was that he was unaware whether Michael O’Brien was buying and selling bars personally, or facilitating such transactions for others. In one instance Mr Coffey said of Michael O’Brien that “he’s running around buying bars, well, facilitating the
purchase of bars in some way”.47 In context, I am satisfied that Mr Coffey was fixed
with knowledge that Michael O’Brien was dealing in licenced premises, whether he
was using his own funds or someone else’s.
[87] Mr Coffey accepted that he had been involved in helping Michael O’Brien purchase the Stars Bar in Auckland in October 2008 but characterised it as Michael O’Brien facilitating the purchase by Paul Max.48
[88] Mr Coffey had particular difficulty with a January 2010 email to another bar owner who was otherwise uninvolved in the proceedings, Harjit Dheil. The email was about bars for sale and Mr Coffey stated that he had “made enquiries with a friend of mine who owns four bars in Auckland”. The email continued: 49
He has to sell a couple due to personal problems. He is keen to sell Stars
Bar Otahuhu and the Papakura Clubrooms.
[89] Mr Coffey prevaricated and gave qualified denials to the proposition that the friend referred to was Michael O’Brien but eventually accepted that Michael O’Brien was the friend being referred to.50 Mr Coffey accepted that the reference to “Papakura Clubrooms” ought to have been to the Papatoetoe Clubrooms, one of the
venues that originally featured in the proceedings.
46 NOE 2186 l 18.
47 NOE 2178 l 14, and more generally 2161-2194.
48 NOE 2163 l 22.
49 SFO 56905.
50 NOE 2166 and 2167, compare 2203.
[90] I find that Mr Coffey was aware of Michael O’Brien’s extensive involvement in the control of class 4 venues. Mr Coffey had sufficient awareness of the links between Michael O’Brien and Mr Max for his statements distancing Michael O’Brien from the Hardware Bar and his more general denials of Michael O’Brien’s involvement with venues to be deliberately false at the time they were made in August and September 2009.
[91] There is a prospect that in a more subtle than explicit arrangement to mislead the DIA, Michael O’Brien discussed his initiatives with Mr Coffey on literal terms that claimed that he would not be involved in Bluegrass whereas the reality of their dealings as they unfolded must very plainly have demonstrated the opposite to Mr Coffey, namely that Michael O’Brien in fact enjoyed a significant measure of control. The obvious explanation for Michael O’Brien to claim a lack of involvement where his conduct clearly demonstrated the contrary, was their shared understanding that Michael O’Brien’s true involvement had to remain hidden from the DIA.
[92] A comparable example of Michael O’Brien adopting that stance is evidenced by the intercepted conversations that he had during a later period with Ms Bak. I find that her ongoing dealings with Michael O’Brien made it very clear to her that he controlled, or at least significantly influenced, the grants made to various racing clubs. Notwithstanding that obvious level of involvement, he maintained a façade in what he said literally to her on some occasions that he did not control the grants decisions. The content and tone of Ms Bak’s responses to those statements satisfies me that she understood it was a form of double-speak that was part of hiding Michael O’Brien’s true involvement from the DIA. She acknowledged in evidence an awareness that Michael O’Brien could not be a “front person” for Bluegrass
because he had had problems with the DIA before.51
[93] Either an explicit or implicit version of the understanding between Michael
O’Brien and Mr Coffey enables me to be satisfied beyond reasonable doubt that
Mr Coffey was aware of and intentionally participated in the misrepresentation as to
51 NOE 1569 l 24.
the nature of Michael O’Brien’s involvement in the application to obtain an operator’s licence for Bluegrass.
Were the false representations material to DIA’s decision?
[94] Mr Squire challenged the Crown’s ability to prove beyond reasonable doubt that any false representations it made out had materially influenced the decision by DIA to issue the operator’s licence. He characterised the DIA as having a pre-existing mindset against Michael O’Brien, and argued that the DIA’s concerns about Michael O’Brien’s involvement were met by granting the licence for a limited period of six months instead of a year. That course was adopted to give the DIA time to assess further the true nature of any involvement Michael O’Brien had once the trust was operating. Arguably the Crown could therefore not prove that any false representations were material to the DIA’s decision to grant the licence.
[95] Mr Squire’s analysis of the evidence on this point was that Mr Currie’s decision to approve the issue of the operator’s licence was made in reliance on all of the content of Mr Brook’s report, including the appendices. Mr Currie’s evidence was to the effect that he did not consider the appendices, and did not recall being aware of Mr Coffey’s statements about the nature of Michael O’Brien’s involvement. However, Mr Squire elicited acknowledgements that Mr Currie took advice from internal legal advisers and operational policy personnel who could be expected to have considered the whole of the report, including appendices which in turn included the transcript of Mr Owen’s interview with Mr Coffey.
[96] On the premise that Mr Currie’s decision was made knowing that Michael O’Brien was involved with Bluegrass to the extent that Mr Coffey had indicated to Mr Owen in his interview, Mr Squire’s cross examination on the point concluded as follows: 52
Q… that you issued the licence knowing of his involvement but taking the view that that involvement at that stage didn’t enable you to make a, as it were, a final decision, so you issued a licence for only six months knowing, or thinking as you did at that time, that the investigation team would have further information for you at that time?
52 NOE 547 ll 16-22.
A Yes.
[97] The Crown case was that if the false representations were not made to the DIA it would have treated Michael O’Brien as a key person and on that basis have declined to issue the operator’s licence.
[98] To recap, the DIA had formed the view that Michael O’Brien was unsuitable during its Metro Trust investigation. That investigation resulted in the DIA’s December 2005 decision to cancel Metro Trust’s operator’s licence. The principle concern for that was Michael O’Brien’s unsuitability, and rejection of the Trust’s claim that he was involved as an independent contractor. The DIA took the view that
he remained a key person.53
[99] The Metro Trust appealed the DIA’s decision which had the effect of enabling its licence to continue until the appeal was resolved. In February 2006 Metro notified the DIA of a change in venue manager at the Origins Sports Bar, nominating Michael O’Brien as the new venue manager. In April 2006 the DIA advised its decision to cancel the class 4 venue licence for Origins Sports Bar on the ground of
Michael O’Brien’s unsuitability. That letter was copied directly to him by the DIA.54
There was no evidence suggesting grounds for a belief that the DIA had changed its view towards Michael O’Brien and, as made very clear in Mr Squire’s cross examination of departmental witnesses, a firm mindset persisted that he was unsuitable to be involved in the industry.
[100] It is therefore clear that, following the investigation into the Metro Trust, DIA took the view that Michael O’Brien was unsuitable to be a key person involved with either an operator’s licence or a venue licence.
[101] The same attitude persisted after Bluegrass’ operator’s licence was approved, as instanced by the DIA’s January 2011 response to the notification of a change in key person for the Terrace Tavern and Stars Bar which resulted from Michael O’Brien assuming legal ownership of the shares in TOKP.55 These venues were then
under NZCT’s operating licence and it was given notice that the DIA proposed to
53 SFO 284350.
54 SFO 291149.
55 The background to that is addressed in assessing charge 15 at [233]-[245] below.
refuse to renew it because of its “justifiable concerns as to the suitability of Michael O’Brien”.56 The evidence included an internal DIA email noting informal advice to Bluegrass that its application for a change in respect of Hardy’s Bar would not have been approved whilst Michael O’Brien was the sole director and shareholder of Maximum Holdings, which operated the venue.57
[102] I do not accept that the reconstruction of the circumstances in which Mr Currie’s decision was made prevents the Crown proving the materiality of the false representations. The best information the DIA had was the unequivocal denials of Michael O’Brien’s involvement that it received in interviews with Patrick and Michael O’Brien in August 2009 and the repetition by Patrick O’Brien of that denial in the 18 December 2009 meeting with DIA representatives. I am satisfied that Mr Brook’s report was prepared in reliance on the statements that had then been made by both the O’Briens in reaching the view that there was no sufficient evidence of Michael O’Brien’s involvement.
[103] The strongest contradiction of the denials conveyed by both the O’Briens was Mr Coffey’s response in his 26 August 2009 interview, in the passage quoted at para [49] above. The most positive indication of Michael O’Brien’s involvement was Mr Coffey thinking that he had certainly been involved in helping Patrick O’Brien and “I presume he [Michael] set the thing up”. That statement is to be balanced against the observation that Mr Coffey imagined Michael O’Brien had been involved behind the scenes helping Pat O’Brien but that he was not the person directly behind Bluegrass. Mr Coffey’s comments are to be interpreted as made by someone somewhat removed from the relevant arrangements. That is because it was expressed as what Mr Coffey presumed or imagined to be the nature of Michael O’Brien’s involvement, always in a context where it was at the direction of his father. That was not the case. I do not accept that imputing an awareness of Mr Coffey’s statements to Mr Currie at the time he made the decision requires the attribution to Mr Currie of an awareness that Michael O’Brien was sufficiently
involved to consider him as a key person.
56 SFO 283509.
57 SFO 203632.
[104] Mr Currie’s rationale for authorising a licence for only six months to enable further research to be undertaken was not because he knew of, but had doubts about, the consequences of the extent to which Michael O’Brien was involved. Rather, because of the strength of the departmental feeling about Michael O’Brien’s unsuitability and the prospect that there may be an extent of involvement that had not been disclosed, granting a licence for the shorter than usual period would enable that to be revisited. I am satisfied that approach would not have been adopted if Mr Currie was aware of the true extent of Michael O’Brien’s involvement. It follows that the false representations were material to the DIA decision to grant the operator’s licence.
Value of the operator’s licence
[105] A further element of the charge is that the benefit obtained as a result of false representations, namely the class 4 operator’s licence, had a value exceeding $1000. This is an element that is required to be proved beyond reasonable doubt.58 In its opening, the Crown acknowledged that the value of the operator’s licence was not capable of precise quantification, but submitted that because the licence enabled Bluegrass to obtain control of net proceeds of gaming machines, the level of those net proceeds are a measure of its value that clearly exceeded $1000. In the period from December 2009 to the end of July 2013 Bluegrass made grants out of net gaming proceeds of some $11.8 million.59 The Crown closing did not address the value of the licence any further.
[106] Mr Squire took a number of points in disputing that the Crown had proved the requisite value of the operator’s licence. He cited two appellate decisions considering the approach to the categorisation and value of dishonestly obtained items where that was not readily ascertainable.
[107] First, in Dixon v R, the Supreme Court considered the appropriate characterisation of dishonestly obtained CCTV video footage of a visiting English
rugby player, Mr Tindall, who attracted something of a celebrity status by virtue of
58 R v Koura [1996] 2 NZLR 9 (CA).
59 Exhibit 24.
his marriage to a member of the Royal Family.60 Mr Dixon worked for a company that provided security services to a bar in which the rugby players had been drinking. He obtained a compilation of the relevant CCTV footage which showed Mr Tindall socialising with and then leaving the premises with a female patron. Mr Dixon attempted unsuccessfully to sell the footage to overseas media interests and eventually posted it on a video sharing site. He was charged with accessing a computer system for a dishonest purpose contrary to s 249(1)(a) of the Crimes Act
1961. An element of that offence required proof of accessing a computer system to obtain “any property, privilege, service, pecuniary advantage, benefit, or valuable consideration”. At Mr Dixon’s District Court trial, the jury was directed that the digital footage was property, and he was convicted on the basis of that direction.
[108] On appeal to the Court of Appeal, it was held that the video footage was not “property” for the purposes of the relevant section, but the Court considered that Mr Dixon had accessed a computer to obtain a benefit which was another form of the relevant offence. Accordingly, the Court of Appeal quashed his original conviction and substituted a conviction for obtaining a benefit.
[109] In responding to the further appeal in the Supreme Court, the Crown argued that digital files of the type involved were not simply information, but were properly regarded as personal property. The Supreme Court accepted that analysis. The consequence was that the Court of Appeal decision was quashed and the original conviction reinstated. Mr Squire relied on the following paragraph:
[51] Like the Court of Appeal, we consider that conduct such as Mr Dixon’s is clearly within the statutory purpose of s 249. However, we think it a more natural interpretation of s 249(1)(a) to say that Mr Dixon took “property” when he downloaded the compilation of digital files to his USB stick and deleted them from the desktop computer than it is to say that he acquired a “benefit”. A benefit is an “advantage”, “good” or “profit” and it was not at all clear at the point he acquired them whether Mr Dixon obtained any advantage or profit from having the files: at best he acquired something that was potentially of advantage or profit to him. We consider that interpreting the word “property” as we have is not only required by the statutory purpose and context but is also consistent with the common conception of “property”.
[110] Mr Squire argued for an analogy requiring the character of what was acquired, and an assessment of its value to be carried out at the time it was acquired,
60 Dixon v R [2015] NZSC 147, [2016] 1 NZLR 678.
without projecting a value of the licence that it might or might not generate in the future.
[111] Mr Squire also invited analogy with the more recent Court of Appeal decision in Li v R.61 In that case the defendant had been found guilty of a charge of obtaining by deception possession of a benefit namely an educational diploma. The charge had been brought under the same section as is relevant here, s 240(1)(a) of the Crimes Act 1961 and an issue on appeal was whether there had been proof of the requisite value of the benefit procured. It was argued for Mr Li that there could be no benefit
unless the educational certificate was actually used for its intended purpose, namely to obtain employment, and that such reliance on it had never occurred. Mr Squire cited the Court of Appeal’s response to that point in the following paragraph:
[26] We reject these submissions. The issue is whether the certificate comes within the meaning of “benefit” for the purposes of the section, not whether some consequential benefit, such as employment, has been gained as a result of acquiring it. The question of whether the certificate is a benefit is to be judged at the time it is obtained and is not dependent on whether it is later used. We consider that the certificate is a “good” and therefore a benefit within its ordinary meaning. It could also be regarded as an “advantage”, as the Judge found.
[112] Mr Squire argued that the approach requiring the assessment to be judged at the time the certificate was obtained should equally apply to assessing the operator’s licence as it presented itself at the time it was obtained.
[113] I accept that the value is to be assessed at the date the operator’s licence was issued. However, the nature of the licence is relevant to considering whether, like the dishonestly obtained video footage and the educational certificate, an assessment of its value must necessarily exclude the prospects for its future earning capacity. The prospects of Mr Dixon obtaining a financial reward from trading in the video footage, and the prospects of the educational certificate in Li enabling employment to be obtained which would not otherwise be available to the holder of the certificate are both sufficiently uncertain to be speculative.
[114] In contrast, the prospects of the operator’s licence generating significant
revenues for Bluegrass was sufficiently probable for it to be a bankable proposition
61 Li v R [2016] NZCA 237.
for lenders funding acquisition of gaming machines. It was a similarly bankable prospect for the promoters of Bluegrass to attach to the application a forecast of financial performance through its first 12 months in operation to generate net proceeds (that is, turnover minus total prizes) from 18 gaming machines of
$1,313,312.62 Any net present value calculation for the licence and other assets
necessary to generate those net proceeds would no doubt involve a discounting factor to recognise the uncertainties involved in the licence generating that level of proceeds. However, on any view, on the day it was issued it represented an asset of considerable material value.
[115] The operator’s licence constitutes a statutorily regulated grant of permission to conduct a cash generating business that is otherwise prohibited. There was no guarantee of its tenure beyond (in this case) the initial six months for which the licence issued. However, a licence holder in Bluegrass’ position would have a reasonable expectation of maintaining the licence so long as the operator conformed with the legal requirements and it continued to be controlled by the individuals identified as not unsuitable key persons, for the foreseeable future. (Ironically here, continued exclusion of Michael O’Brien from any position as a key person would be one requirement for continuity.) The presumption of the continuity of licences is illustrated by the process for licences to be deemed renewed once an application for renewal was lodged.
[116] The operator’s licence did not have a market value in the way, for example, that individual transferrable quota issued under the Fisheries Management legislation does.63 The provisions of that regime recognise the tradability of quota whereas any gambling licence is personal to those assuming responsibility for its governance. However, that does not deprive the licence of a value in the hands of those who have successfully applied for it.
[117] Here, the applicants were prepared to commit $9148 as application fees for
[327] I do not consider that a relevant distinction can be drawn between Mr Max being aware of the DIA investigation into Michael O’Brien’s involvement in running a trust that was licenced as an operator, and the supposedly distinct proposition that any adverse views on that form of involvement did not infer an adverse view about his involvement in the operation of venues. I am not satisfied that any reasonable doubt is raised by drawing that distinction, in light of the extent of awareness Mr Max acknowledged in cross examination.
[328] Mr Corlett was critical of unproven assumptions which formed implicit premises on which questions were put to Mr Max in cross examination. I have reconsidered the cross examination in light of his criticisms and those criticisms do not alter the overall conclusion that I have reached.
Alternative rationale for Mr Max to hold the shares in Maximum Holdings
[329] Mr Corlett was critical of perceived deficiencies in the SFO investigation into Mr Max’s involvement in the ownership and control of the relevant venues. This included the SFO’s failure to acknowledge and take into account a refusal by the landlord of the Hardy’s premises to grant an assignment of the lease from Maximum Holdings to QS Holdings Limited, a company controlled by Michael O’Brien’s wife, Nikki Sun, in late 2005 and early 2006. In Mr Max’s evidence, he treated the refusal of the landlord to consent to that proposed assignment as a valid commercial reason for him to accept the invitation and take legal ownership of the shares in Maximum Holdings. This was because the landlord would be unable to reasonably withhold consent to that change in shareholding when Mr Max’s MaxLam company was already responsible for managing the premises.
[330] Michael O’Brien’s lawyer challenged the landlord’s refusal to consent to the assignment as unreasonable, and District Court proceedings were commenced in an attempt to require the landlord to provide the necessary consent. Negotiations between the landlord’s representative and Michael O’Brien and his wife, supported by their lawyer, took place but no settlement was achieved. Mr Max provided an affidavit in support of the court application to provide an assurance that the premises would continue to operate as they had previously.
[331] Rather than persist with the dispute with the landlord, Michael O’Brien initiated arrangements for the shares in Maximum Holdings to be sold to Mr Max. An analysis of the transaction was undertaken by Ms Phillips of the SFO who gave evidence that the reason for Mr Max’s involvement in the transaction was to conceal Michael O’Brien’s involvement as the initiator and controller of the transaction. Her analysis made no reference to the problem encountered in not being able to obtain the landlord’s consent to an assignment of the lease to QS Holdings Limited.
[332] Ms Phillips was thoroughly cross examined by Mr Corlett on that omission. She eventually accepted that an inevitable conclusion from the sequence of these events was that Mr Max had agreed to take the shares to enable the court
proceedings to be discontinued and the impediment that had arisen to the assignment of the lease to be overcome.148
[333] It is not critical, but I note an associated aspect of Mr Corlett’s analysis of these transactions that I do not accept. He characterised Mr Max’s acquisition of the Maximum Holdings shares in early 2006 as being held on behalf of Ms Sun, with Michael O’Brien substituting for Ms Sun as the beneficial owner of those shares at some later point in time. The basis for this was Mr Max’s own evidence that he acquired the shares in 2006 to hold them on trust for Ms Sun.
[334] None of the documents or the context of the transaction as I have reconstructed it support Mr Max’s recollection. I am satisfied that Michael O’Brien procured the involvement of Ms Sun when it was proposed that her company should acquire the business and Michael O’Brien was the driving force in the altered arrangement that resulted in Mr Max acquiring the shares in the existing operating company. The indemnity provided by Michael O’Brien in favour of Mr Max for any liabilities arising from his holding the shares made no mention at all of Ms Sun. I interpret it as recording acquisition of the shares by Mr Max at Michael O’Brien’s request.
[335] I am satisfied that, from the outset, Michael O’Brien was the beneficiary for whom the shares in Maximum Holdings were being held by Mr Max. There is no suggestion that Ms Sun committed financial resources then or thereafter, to any of the business initiatives orchestrated in Maximum Holdings’ name by Michael O’Brien. It does not affect the case against Mr Max directly, but I infer that Michael O’Brien had most likely involved Ms Sun as a nominee for his own ongoing interest. From 30 November 2005, Michael O’Brien was on notice that the DIA would not
have granted a venue licence to Ms Sun because of her association with him.149
[336] I accept that the initial catalyst for Mr Max to take the shareholding in Maximum Holdings may well have been to get around the difficulty that had arisen with the landlord of the Hardy’s Bar premises. I also accept that Mr Max had his
own commercial incentives for agreeing to hold the shares as a nominee or trustee
148 NOE 1947 l 5 and 1948 l 7.
149 SFO 29146 and 101096 (neither of these are on digital file).
for Michael O’Brien. Clearly, that arrangement would strengthen the relationship between the “real” owner of Hardy’s Bar, and MaxLam in its management contract for running the venue. Removing one entity in the chain between the manager and the real owner (as would occur if, say, Michael O’Brien got an otherwise uninvolved third party to hold the shares for him) would be likely to increase the prospects of the venue owner-manager relationship remaining a positive one.
[337] In addition, Mr Max saw advantages in his dealings with third parties such as suppliers to the venue, the landlord and other Government agencies if he had the standing of the owner of the business as well as the role as the contracted manager of it. Before deciding whether these other reasons create a reasonable doubt about concealment of Michael O’Brien’s interest as a material factor in Mr Max taking legal ownership of the shares, I deal with another reason advanced by Mr Max.
Tax losses a legitimate reason
[338] By the time Michael O’Brien pursued the purchase of the Hardware Bar in late 2006, the arrangements were in place for Mr Max to hold the shares in Maximum Holdings on trust for Michael O’Brien. That company had accumulated tax losses that would be available to offset other income. Mr Max’s explanation for using Maximum Holdings to acquire the Hardware Bar was so as to be able to utilise those tax losses.
[339] Mr Corlett’s cross examination of Ms Phillips produced acknowledgments from her that such tax losses were available, and that utilisation of them would be a valid commercial reason for using Maximum Holdings to complete the purchase of the Hardware Bar.
[340] Mr Corlett submitted that Mr Max had not been thoroughly tested on his explanation that Maximum Holdings was used as the vehicle for acquiring the Hardware Bar because it preserved the prospect of utilising existing tax losses. I am not satisfied that is the case. Mr Max was cross examined to the effect that whilst utilisation of tax losses in Maximum Holdings provided a commercial imperative for
using it to acquire the Hardware Bar, that did not lessen the actual intention which was to deceive the DIA.150 Predictably, Mr Max disagreed.
[341] The identity of the company used to acquire the Hardware Bar cannot be the determinant of whether those undertaking the transaction intended to complete it in a way that concealed Michael O’Brien’s involvement. While I accept that the existence of tax losses in Maximum Holdings could provide a justifiable pretext for utilising that company as the acquirer, the more relevant point is that it was done in a way which deceived the DIA by concealing Michael O’Brien’s involvement. Had Mr Max considered, by September 2006, that his declaration to the DIA should disclose Michael O’Brien as a person with a significant interest in the management of the venue then that could have been done whichever of Michael O’Brien’s entities was used as the acquirer. Completing an honest disclosure to the DIA would not have any impact on Maximum Holdings’ entitlement to offset existing tax losses against any taxable income generated once the Hardware Bar was up and running.
[342] Mr Max’s explanation for using TOKP to acquire the business of the Terrace Tavern was that TOKP had by then also accrued tax losses in the operation of the other licenced venues owned by it, so that if the Terrace Tavern generated taxable profits they could be offset if it was owned by TOKP.151
[343] My analysis on the purported wish to apply tax losses in Maximum Holdings applies equally in assessing the purpose for using TOKP to acquire the Terrace Tavern. The particular identity of the company that acquired the business is less relevant than the decision not to disclose Michael O’Brien as a person having a significant influence over the ownership or management of the venue. The existence of tax losses in TOKP does not prevent the Crown from proving a dishonest purpose attributable to Michael O’Brien and Mr Max for not disclosing Michael O’Brien’s interest.
[344] The existence of tax losses is a realistic variant on other sensible commercial reasons for using the same corporate entity that is in common ownership and in the
same type of business. Mr Max might reasonably have justified using the existing
150 NOE 2449.
151 NOE 2276.
vehicle of Maximum Holdings to acquire a further bar with a class 4 venue licence, to avoid the costs of establishing a separate company and to obtain the ongoing efficiencies in the administration and preparation of financial statements. The deception of the DIA was not effected by the further use of Maximum Holdings and TOKP, but rather by the ongoing concealment of Michael O’Brien’s interest in them.
[345] Making every allowance for the relevance that these factors could have had for Mr Max in agreeing to hold the shares for Michael O’Brien, they cannot relegate the materiality of concealing Michael O’Brien’s interest in Maximum Holdings and TOKP and consequently in the three venues from the DIA as a material reason for agreeing to participate in the arrangements. Both defendants appreciated that if Michael O’Brien’s involvement was disclosed to the DIA, then there was a very good chance that the licences would not be granted, or continued. Concealment was therefore critical to their aims for the businesses. That understanding remained important when other venues were acquired, throughout the period until Mr Max’s involvement came to an end.
Involvement of Michael O’Brien’s lawyer
[346] Mr Corlett raised the involvement throughout these transactions of Michael O’Brien’s lawyer in a number of respects. He submitted that a practitioner from a respectable law firm would not participate in structures that concealed Michael O’Brien’s involvement in any unlawful way, so that the arrangements ought not to be seen as a vehicle for unlawful activity. Arguably the lawyer’s involvement negated any inference that the arrangements had a dishonest purpose. A subset of this proposition is, even if not sustainable on its terms, Mr Max was entitled to see the involvement of that lawyer as implicitly giving the transactions the seal of approval
as valid commercial arrangements.152
[347] Mr Squire did not advance the same argument for Michael O’Brien, who was providing the instructions to the lawyer. I do not accept that the lawyer’s involvement transforms the character of the transactions, or the intentions of the participants in undertaking them. The lawyer involved was neither on trial nor the
subject of criticism in submissions. The lawyer was not a witness so has not been
152 Closing submissions for Mr Max at, for example [59] and [211]-[213].
afforded an opportunity to respond to any concerns about the character of the
lawyer’s input.
[348] I make no findings of complicity by the lawyer in Michael O’Brien’s dishonest concealment of his involvement in licenced venues, but note the following aspects of the lawyer’s involvement:
·The lawyer prepared a deed of indemnity on Michael O’Brien’s instructions in February 2006, to afford Mr Max protection in relation to liabilities that might arise from assuming legal ownership of the shares in Maximum Holdings. The lawyer commented to Michael O’Brien about the draft as follows:153
I have mixed feelings about this as I would normally have far wider provisions spelling out the scope and extent of Paul’s obligations so that he effectively acts as a trustee but I do not think it is wise to go into that detail in this instance; I can however broaden the deed if you wish.
The context in which that email was sent raises the inference that the lawyer was conscious of Michael O’Brien’s concern to hide his involvement in Maximum Holdings so that the deed of indemnity ought not to provide an acknowledgement the DIA might discover of Michael O’Brien’s beneficial ownership of, or control over, the shares.
·The same lawyer was responsible for the 2007 deed of indemnity covering Mr Max’s holding of legal ownership in the shares in Maximum Holdings and for the 2010 agreement for sale and purchase of all those shares.154
Similar questions arise on the inconsistencies between the need for consideration passing to Mr Max, and his having held the shares on trust for Michael O’Brien as I have analysed in relation to TOKP at [241]-[244] above. The consideration stipulated in the agreement for sale and purchase in relation to the Maximum Holdings shares was $390,000 which was to be satisfied by Michael O’Brien assuming liability for debts owed by Maximum
Holdings to third parties for a total sum that equalled the consideration
153 SFO 101615.
154 SFO 77242.
stipulated. There is scope to doubt that notional consideration constituted any genuine consideration at all. The agreement for sale and purchase would enable Michael O’Brien to claim that the transfer of shares from Mr Max to him at that time was an arm’s length sale and purchase for valuable consideration which could be used to misrepresent the underlying nature of previously existing arrangements to either the DIA and/or Mr Max’s trustee in bankruptcy.
·In August 2011 the lawyer prepared declarations of trust acknowledging that the shares in TOKP and Windsock (2007) Ltd were being held by Mr Max on trust for Michael O’Brien. These documents were executed by Mr Max and Michael O’Brien, backdated to 2007. The lawyer did not witness their execution. The printed terms of those documents left the year to be completed with only the digits “20 ” included as part of the typed documents. The incomplete state of that dating of those documents is to be contrasted with the 2007 deed of indemnity completed between Michael O’Brien and Mr Max in respect of the shares in Maximum Holdings, and agreements for sale and purchase of the shares in Maximum Holdings and TOKP where the printed dates included the years as “2007” and “2010”
respectively.155
·The lawyer was acting for Michael O’Brien and there is no suggestion that he assumed responsibility to advise Mr Max, or to have regard to his interests.
[349] In all these circumstances, I do not accept that Mr Max could rely on the involvement of Michael O’Brien’s lawyer as justifying a belief in the legitimacy of transactions he undertook. This is particularly so when I attribute to Mr Max an awareness that the transactions were intended to conceal Michael O’Brien’s true level of involvement, and had that effect.
[350] I have also had regard to the 2009 dealings between both the defendants and
NZCT. Although only directly relevant to their dealings with the Terrace Tavern venue that was licenced to NZCT, their implicit recognition of the need to hide
155 SFO 77242 and 72537, compare SFO 49473 and 49477.
Michael O’Brien’s involvement with venues corroborates the findings I have made
with respect to Bluegrass venues.
[351] It follows from this analysis that I am also satisfied that the involvement of Mr Max in concealing Michael O’Brien’s involvement was done with dishonest intent to deceive the DIA when it came to assess various applications for venue licences for the three venues in issue.
Others similarly involved were not charged
[352] In challenging the Crown case on Mr Max’s alleged dishonest purpose, Mr Corlett argued that he was in good company with a number of Crown witnesses. Those witnesses had been involved in holding shares for Michael O’Brien’s beneficial interests in the same or other companies that operated class 4 gambling venues, or were at least complicit in such arrangements. Because the Crown had not charged any of those others, arguably it accepted that holding shares as nominee for Michael O’Brien per se did not establish a dishonest purpose for doing so.
[353] The first instance of this was Megan Walsh who held shares for Michael O’Brien in Hops N Hooves Limited in 2011. This occurred when Mr Max was or was likely to become unfit on account of bankruptcy and Mr Todd-Lambie was also deemed unsuitable because of what had apparently been an infringement of the rules imposed under the Act for accounting for the banking of gambling proceeds. Ms Walsh was familiar with the operation of class 4 gambling venues managed by MaxLam because of her work doing office administration and accounts for that company. She was asked to hold the shares by Mr Todd-Lambie, but appreciated that she was doing so on behalf of Michael O’Brien’s beneficial interests. She did not explicitly acknowledge being aware of the DIA’s view of his unsuitability as the reason for Michael O’Brien not holding the shares in his own name. However, she was aware that his holding the shares directly was an unlikely option from general
discussion around the office.156
[354] The second Crown witness who held shares as a nominee was Carmen
Cartwright who held the shares in Maximum Holdings. She and Ms Sun completed
156 NOE 1614-1615 and 1626-1628.
a deed of trust dated 17 February 2012 pursuant to which Ms Cartwright acknowledged that she was holding the shares in Maximum Holdings on trust for Ms Sun.157 That deed was completed more or less contemporaneously with an agreement for sale and purchase of the shares in Maximum Holdings from Mr Max to Ms Cartwright.158 Both documents were prepared by Michael O’Brien’s lawyer and he witnessed Mr Max’s execution of the agreement for sale and purchase.
[355] Ms Cartwright was the manager of Hardy’s Bar and the transaction was put to her as enabling the continuation of its class 4 venue licence. She had nothing to do with Ms Sun and very little to do with Michael O’Brien.
[356] Neither Ms Walsh nor Ms Cartwright gave evidence subject to a Crown indemnity and Mr Corlett argued that the Crown’s implicit acceptance of lack of any dishonest intention on their part could not be distinguished from the circumstances in which Mr Max had participated in similar arrangements. I am not persuaded that the absence of charges against Ms Walsh and Ms Cartwright adversely affects the Crown’s ability to prove a dishonest intention on Mr Max’s part. The nature, extent and level of understanding affecting their involvement in such a transaction are fact specific to each of them. Mr Max is fixed with a significantly greater level of knowledge of the background to Michael O’Brien seeking to conceal his involvement in venues. Additionally, Mr Max’s interactions with the DIA throughout the period in which he acted as a nominee provide evidence for the Crown to rely on in inviting a finding of a dishonest purpose.
[357] Mr Corlett also compared the circumstances of Mr Max’s involvement with those of his then business partner, Mr Todd-Lambie who was also a Crown witness who appeared without any immunity. On Mr Corlett’s argument, Mr Todd-Lambie had a similar awareness to Mr Max of Michael O’Brien’s rationale for concealing his involvement in class 4 gambling venues.
[358] Mr Todd-Lambie was aware of Mr Max’s arrangements for holding shares in
Maximum and TOKP. Although concerned about the prospect of financial exposure for Mr Max, there was no suggestion that he was concerned about the probity of
157 SFO 77283.
158 SFO 77277.
what was being done. Given that the Crown had called Mr Todd-Lambie without being critical of his participation, Mr Corlett argued that a similar level of awareness on Mr Todd-Lambie’s part must be taken as acceptance of the prospect of genuine commercial rather than dishonest purposes for holding shares in class 4 venues for Michael O’Brien.
[359] Again, this comparison of the position of the two MaxLam directors does not create any reasonable doubt about the dishonest nature of Mr Max’s significantly greater involvement in concealing Michael O’Brien’s interest in the venues. It is unrealistic to suggest that Mr Todd-Lambie should be assessed as the keeper of Mr Max’s conscience, when assessing the relative strength of the inferences available to the Crown as to Mr Max’s purpose for participating as he did.
The nature of the fraudulent device or stratagem
[360] The Crown submitted that Michael O’Brien must have discussed with Mr Max the former’s plan to conceal his involvement in venues from the DIA. This was driven by the logic that if others involved in managing the venues and who knew of his involvement did not act consistently with Michael O’Brien’s plan to conceal that fact it would be futile to attempt to keep his involvement hidden.
[361] There is no written evidence of such an explicit understanding between them, and nor was there any intercepted communication that would reflect an explicit understanding. However, I find that by mid 2009 Michael O’Brien and Mr Max had worked together respectively as the “real” owner and as operator of licenced venues for many years. The terms of their dealings suggest that they knew each other well in a business context and I am satisfied that Michael O’Brien trusted Mr Max to conduct the operation of the licenced venues consistently with Michael O’Brien’s interests.
[362] I note that in minutes of a meeting attended by Messrs Max, Todd-Lambie and Michael O’Brien on 11 June 2006, Michael O’Brien is recorded as expressing concern that he had not been receiving monthly management accounts. Those minutes also record Michael O’Brien suggesting that Mr Max should undertake a
range of initiatives in relation to certain licenced venues.159 I do not treat that relatively early concern at inadequate information flows as derogating from the overall relationship I have discerned as one of considerable trust by Michael O’Brien in Mr Max’s commitment to act in his interests.
[363] Michael O’Brien’s level of trust in Mr Max was high. It is illustrated by the fact that he facilitated the purchase of all the shares in Maximum Holdings in Mr Max’s name without requiring any formal acknowledgement of Michael O’Brien’s beneficial interest in the shareholding for a substantial period of time. The
2006 deed of indemnity which was in somewhat limited terms was for Mr Max’s protection, and did not expressly require Mr Max to transfer the shares at Michael O’Brien’s direction. I accept that omission may have been driven more by Michael O’Brien’s lawyer’s concern to omit any direct evidence of his control over the shares than a demonstration of a level of trust that rendered such a usual provision
unnecessary.160 However, the shares were held from early 2006 until July 2007
without it.
[364] Michael O’Brien and Mr Max documented irreconcilable terms for holding ownership of the shares in Maximum Holdings and TOKP and purportedly arms- length sales of the shares. This is consistent with an ongoing scheme to conceal the true nature of the ownership of the shares in entities operating licenced venues that would be in jeopardy if Michael O’Brien’s significant interest in them was disclosed.
[365] Given the nature and length of their relationship, and the extent of the dealings between them, I consider it very likely that a plan was agreed between them. That plan included Mr Max concealing Michael O’Brien’s interest in Maximum Holdings and TOKP, and denying Michael O’Brien’s significant influence if asked by the DIA. I am satisfied beyond reasonable doubt that there was at least an implicit understanding between them that a significant reason for Mr Max agreeing to take ownership of the shares in both companies was to conceal Michael
O’Brien’s interest in them from the DIA. I am satisfied that that understanding
159 SFO 159796.
160 See the lawyer’s email on the omission of usual terms because “I do not think it is wise to go into that detail in this instance” quoted more fully at [348] above.
persisted through the various turns of events until, and throughout the period to which the venue charges relate.
Was the concealment material to the DIA?
[366] I have previously assessed the materiality of Michael O’Brien’s involvement to the DIA’s decisions on granting an operator’s licence.161 The DIA had made it clear that Michael O’Brien was unsuitable to be involved in the industry, and its concerns applied similarly to involvement with operators and to the management of venues.
[367] Mr Squire argued that the Crown had to prove a causal connection between any concealment of Michael O’Brien’s position and the reasons relied on by the DIA officer who actually issued each of the venue licences. He contended that the Crown required evidence from those witnesses that their decisions to issue the licences were materially affected by their understanding that Michael O’Brien was not involved.
[368] On Mr Squire’s analysis, Mr Currie, the senior officer with overall responsibility for issuance of the licences and, more particularly, Rochelle Brown who issued the new venue licence for the Terrace Tavern, did not attribute any relevance in explaining their reasons for issuing the licences, to the absence of involvement by Michael O’Brien.
[369] I do not accept that the Crown is required to prove the materiality of concealment of Michael O’Brien’s position in the way contended by Mr Squire. On all the evidence I am satisfied beyond reasonable doubt that Michael O’Brien remained an unsuitable person to be involved in any significant role in the management of class 4 venues throughout the whole period to which the venue charges relate. I am similarly satisfied that, had the nature of his concealed involvement been disclosed to the DIA, then the DIA would either have declined to grant or to renew the licences, or taken steps to suspend and cancel any licences
already issued.
161 Refer to earlier analysis, at [94]-[104] above.
Value of the venue licences
[370] The Crown is required to prove that each venue licence obtained as a result of the deception had a value in excess of $1,000. Generating net proceeds of gambling required an operator’s licence and a number of venue licences which were attached to it. I have analysed above that the operator’s licence and the benefit of net gambling proceeds generated by it had significant value.162 Although less valuable, individual venue licences were a necessary part of the regulatory approvals required to generate gambling returns. That value accrues primarily to the holder of the operating licence. Although value to the business running the venue does not assist
in making out the value of the venue licence because that is attributable to the licenced operator who held it, the commercial reality is that the venue licence was also an asset of material value to the venue, in that the venue business charged fees to the licenced operator for operating the gaming machines, and their presence in the premises created an opportunity to generate trade.
[371] I am satisfied that the value of each of the venue licences exceeded $1,000. They are an integral part of the business of a class 4 gambling operator, and the scale of the operations at each venue requires the recognition of a value for the licence that, on whatever accounting basis, would exceed $1,000.00.
[372] I am also satisfied that the consequence of the deception was, in the case of each venue, to obtain or retain a benefit for the respective operator (Bluegrass in charges 13 and 14, and NZCT in charge 15).
Claim of right
[373] Although a formal element required to be proved, there is no prospect of any issue arising in the circumstances of this activity that there could be a claim of right raised on behalf of the defendants.
Summary
[374] For the foregoing reasons, I find Michael Joseph O’Brien guilty on charges
11 and 12, and charges 13, 14 and 15. I find Kevin Martin Coffey guilty on charge
162 See [105]-[118]
11, and not guilty on charge 12. I find Paul Anthony Max guilty on charges 13, 14 and 15.
Dobson J
Solicitors:
Crown Solicitor, Wellington
R B Squire QC, Wellington for Mr M O’BrienC W J Stevenson, Wellington for Mr P O’Brien
M A Corlett QC, Auckland for Mr Max
Copy to: Mr C
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