R v O'Leary - [2013] NZHC 2784

IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY

CRI 2012-016-241 [2013] NZHC 2784

THE QUEEN

v

NIGEL GRANT O'LEARY JOHN PATRICK GARDNER

Hearing: 24 October 2013

Counsel: G J Burston and C Dwerryhouse for Crown
J G Krebs for Defendant O'Leary
A C Balme for Defendant Gardner

Sentence: 24 October 2013

SENTENCING REMARKS OF SIMON FRANCE J

[1] This sentencing relates to two directors of the failed finance company, Rockforte Finance. A third director, Mr Colin Simpson, has already been sentenced. I begin by giving an overview of the offending.

[2] On 10 May 2011 Rockforte Finance, a Gisborne based finance company, failed. At the time it owed approximately $3.8 million to 90 investors. Ultimately these investors would recover their individual investments because they were covered by the Crown Retail Deposit Guarantee Scheme. That means that the
taxpayer has borne the loss, with prospects of recovery being very low.

R v O'LEARY & GARDNER [2013] NZHC 2784 [24 October 2013]

[3] Finance companies like Rockforte operate under a trust deed which controls the types of loans the company can make. The trust deed is supervised by an independent trustee who must consent to any departures from the rules. The trust deed is a key mechanism in protecting those who invest in these type of businesses, and in preventing their money being misused.

[4] The directors of Rockforte breached these rules, and hid what they were doing from the trustee. They made loans they were not permitted to make. The rules are there for a purpose. Amongst other things they control the risks by limiting for example, how much the company can lend to any one borrower. That way if the borrower gets into difficulty, the company is not over exposed and can ride out the situation.

[5] In this case the directors breached the rules in two ways:

(a) they exceeded what are called the exposure limits which control how much as a percentage of their assets they can invest in any one borrower;

(b)they made what are called unauthorised related party loans. These are loans to borrowers who have a connection to the directors. It is a common area of concern and the rules are strict.

[6] Concerning the related party breaches, the main situation concerns a firm called Gisborne Haulage. It was originally the recipient of legitimate loans but it got into difficulty. Concerned about what would happen to Rockforte if that business failed, the directors took over ownership of it and then proceeded to advance more loans to help the business get through its difficulties. Because the directors now owned the business these new loans were related party loans, but they were not disclosed to the trustee.

[7] Indeed quite the opposite is true. A relative of Mr O’Leary’s, at his instigation, was introduced so that the relative would falsely appear to be the owner. So active steps were being taken to be deceitful, and prevent the trustees, on whom Rockforte investors depended, from knowing what…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading R v O'Leary

Details

AGLC: R v O'Leary [2013] NZHC 2784
Case: [2013] NZHC 2784
Decision Date: 24 October 2013

CaseChat Overview and Summary

In the High Court of New Zealand, Gisborne Registry, Simon France J handed down sentencing remarks in the case of The Queen v Nigel Grant O'Leary and John Patrick Gardner. The two defendants, directors of the failed finance company Rockforte Finance, were convicted for their involvement in the company's failure, which resulted in the loss of approximately $3.8 million to 90 investors. The primary legal issues before the court were the appropriate sentences for the defendants, taking into account the nature and extent of their involvement in the offending, as well as any mitigating factors.

Simon France J began by outlining the offending committed by the defendants, including breaches of trust deed rules, unauthorised related party loans, exceeding exposure limits, and false accounting charges. The court found that Nigel Grant O'Leary was more culpable than his co-defendant, as he was primarily motivated by personal interests and played a central role in the offending. John Patrick Gardner, while complicit in the deceit, had a lesser role in the offending.

Considering the factors in aggravation and mitigation, Simon France J set a starting point of five years' imprisonment for O'Leary and two and a half years for Gardner. After taking into account the defendants' guilty pleas, remorse, and the impact of the offending on their lives and families, the court arrived at a final sentence of four years' imprisonment for O'Leary and 11 months' home detention with 200 hours of community work for Gardner.

In summary, Simon France J sentenced Nigel Grant O'Leary to four years' imprisonment on various charges, with all sentences running concurrently. John Patrick Gardner was sentenced to 11 months' home detention and 200 hours of community work, with specific conditions attached to the home detention. The court emphasised the importance of holding directors accountable for their dishonesty and breach of rules designed to protect investors.

Orders