R v O'Sullivan
[2014] NZHC 1019
•15 May 2014
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CRI 2011-076-1948 [2014] NZHC 1019
THE QUEEN
v
EDWARD ORAL SULLIVAN ROBERT ALEXANDER WHITE and LACHIE JOHN McLEOD
Hearing: 12, 13, 17, 18, 19, 21, 24, 25, 26, 27, 31 March 2014
1, 2, 3, 4, 7, 8, 9, 14, 15, 16, 28, 29, 30 April 2014
1, 2, 5, 6, 7, 8, 9, 13, 14, 15 May 2014Counsel:
C R Carruthers QC, N F Flanagan, P W Gardyne and
E Rutherford for Crown
P H B Hall QC, M A Corlett and K H Cook for Mr Sullivan
R B Squire QC for Mr White
J H M Eaton QC for Mr McLeodJudgment:
15 May 2014
JUDGMENT (NO. 8) OF HEATH J
This judgment was delivered by me on 15 May 2014 at 4.30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
R v SULLIVAN [2014] NZHC 1019 [15 May 2014]
Contents
The application [1] Background [4] Analysis
(a) The charge [14]
(b) The s 344A application: legal principles [19] (c) The proposed evidence [35] (d) What is the probative value of the proposed evidence? [44] (e) Does the unfairly prejudicial effect outweigh the probative value? [47] Result [60]
The application
[1] South Canterbury Finance Ltd (South Canterbury) carried on business as a finance company. Two of its directors, Messrs Sullivan and White, and its Chief Executive Officer, Mr McLeod, are on trial on various counts alleging dishonest conduct in the management and affairs of South Canterbury. The charges cover a period between 18 November 2004 and 20 July 2009. On 31 August 2010, South Canterbury was put into receivership with an estimated deficiency to secured depositors of $1.6 billion.
[2] The Crown applies, under s 344A of the Crimes Act 1961,1 for an order that intended evidence from a senior Treasury official, Dr Brian McCulloch, is admissible. His proposed evidence relates to Count 10 of the indictment.2 Before the trial began, the Crown had stated unequivocally that it did not intend to call Dr McCulloch to give evidence.
[3] The accused oppose the application. They contend that, had they been aware that Dr McCulloch was to give evidence on Count 10, they would have made a number of non-party disclosure applications3 in order to prepare adequately for cross-examination. Their decisions not to do so were based on the Crown’s decision
that Dr McCulloch would not be called as a witness.
1 As informations were laid before 1 July 2013, the controlling law is that in force before relevant parts of the Criminal Procedure Act 2011 became operative: Criminal Procedure Act 2011, s 397.
2 Set out at para [14] below.
3 See the discussion of the disclosure regime established by the Criminal Disclosure Act 2008 in R
v Sullivan (No 7) [2014] NZHC 925 at paras [4]–[7].
Background
[4] In October 2008, the New Zealand Government established a Retail Deposit Guarantee Scheme (the Crown Guarantee Scheme) in an attempt to cushion the effect of what appeared to be a major global economic crisis. The Crown Guarantee Scheme was designed to maintain public confidence in New Zealand’s financial system and the confidence of general public depositors in New Zealand financial
institutions.4
[5] Count 10 is the most serious charge in the indictment. It arises out of South Canterbury’s application to be admitted to the Crown Guarantee Scheme. Broadly speaking, the Crown alleges that the three accused were parties to the provision of documents to Treasury which each knew contained false statements about the extent of related party transactions.5
[6] The Crown contends that had the correct information been disclosed, South Canterbury’s application would either have been deferred for more detailed information to be obtained, or rejected outright.6 While, for present purposes, I must assume that the Crown can establish that each of the accused was a party to making the false representations on which Treasury says it relies, I record that the accused deny all of the Count 10 allegations.
[7] In December last year, the Crown signalled an intention to call only one Treasury witness, Mr John Park. Mr Park was involved in the management of the Crown Guarantee Scheme in 2009 but was not was employed by Treasury in the period leading up to 19 November 2008, when the decision to admit South Canterbury to the scheme was made.
[8] On 19 November 2008, Mr Whitehead, the Secretary of the Treasury (the
Secretary) executed a deed of guarantee (the Guarantee Deed) that brought South
Canterbury within the Crown Guarantee Scheme. The Secretary did so on behalf of
4 See paras [40] and [41] below.
5 Identified in the particulars in Count 10, set out at para [14] below.
6 See para [17] below.
the Crown, acting under delegated authority from the Minister of Finance. It is that act that forms the basis of the inducement allegation.
[9] Mr Whitehead is the only person who can give direct evidence of the factors that influenced him to allow South Canterbury entry into the Crown Guarantee Scheme. A deliberate decision was made by the Crown not to call him as a witness. He may or may not have followed any recommendations that were made to him at a meeting on that day with other officials.7 In the absence of evidence from Mr Whitehead, I will be obliged to determine whether the Crown has proved that the alleged false representations were a material operating cause8 of his decision to sign the Guarantee Deed on behalf of the Crown, on the basis of inferences I can properly draw from the relevant documents, and (presently) the contextual evidence given by Mr Park.
[10] During the course of Mr Park’s cross-examination a number of documents were put to him. They were produced as defence exhibits. The Crown did not object to their admission, but did reserve questions of “context and weight” for final submissions. At the time the documents were produced, I raised a question about the status of factual assertions set out in one of the exhibits, a report that was prepared
by the Controller and Auditor-General (the Auditor-General),9 in 2011. That issue
remains unresolved. Some of the content of the Auditor-General’s report was put to
Mr Park in cross-examination.
[11] Mr Park gave evidence on 15 and 16 April 2014, the twentieth and twenty first days of the trial. His evidence concluded on the last sitting day before the Easter break, a Wednesday. The following day, the Crown informed counsel for the accused that it intended to call Dr McCulloch as an additional witness, to give evidence on the same topics with which Mr Park had dealt.
[12] No written statement from Dr McCulloch had been disclosed to the defence before Mr Park gave evidence. A transcript of an interview with him in December
7 See paras [38], [43] and [49] below.
8 See para [16] below.
9 Office of the Controller and Auditor-General, The Treasury: Implementing and Managing the
Crown Retail Deposit Guarantee Scheme (“Performance Audit Report”, September 2011).
2013 was not made available to counsel for the accused until 17 April 2014. There were apparently delays with the transcription process, coupled with an oversight in providing prompt disclosure once the document was available.
[13] Once the accused signalled opposition to Dr McCulloch giving evidence, the Crown filed its s 344A application. A draft brief of evidence was provided. During initial argument on 30 April 2014, it became clear that the Crown intended to elicit more evidence from Dr McCulloch than was apparent on the face of the brief. I directed that the Crown provide a full brief of what it was proposed that Dr McCulloch say in evidence in chief, if he were called. I also directed that a memorandum be filed by counsel for the Crown advising the basis upon which a deliberate decision had been made not to call Dr McCulloch as a witness. I heard further argument on 7 and 8 May 2014. Having done so, I reserved my decision. In the meantime, the trial has continued.
Analysis
(a) The charge
[14] Count 10 of the indictment states:
10. The Solicitor-General further charges Edward Oral Sullivan, Robert
Alexander White and Lachie John McLeod on or about 18 October
2008 at Timaru or elsewhere in New Zealand by deception and without claim of right induced or caused Her Majesty the Queen in the right of New Zealand acting by and through the Minister of Finance to execute any document or thing capable of being used to derive a pecuniary advantage being the Crown Deed of Guarantee (Non-Bank Deposit Taker) dated 19 November 2008 namely by application for acceptance into the Crown Guarantee Scheme the value of which being in excess of $1,000.00 in favour of South Canterbury Finance Limited.
Particulars
Crown Guarantee Scheme
1. South Canterbury Finance Limited letter of application dated 14
October 2008 together with audited financial report for the year ended 30 June 2008 and Prospectus 58 dated 17 October 2007 which
was misleading in the following respects:
Failing to properly refer to the lending to Woolpak Holdings Ltd or to give proper emphasis to the nature of the lending associated with the Hyatt Hotel Auckland;
Stating that the company had not entered into any other material contracts within the last two years not being in the ordinary course of business;
Stating that “[a]ssociated company and related party transactions totalled $65,450,426…. All transactions were in the normal course of business and are fully secured.” (p32);
2.South Canterbury Finance Limited letter dated 3 November 2008 together with Prospectus 59 dated 17 October 2008 which was misleading in the following respects:
Failing to properly refer to the lending to Woolpak Holdings ltd; Stating that the company had not entered into any other material
contracts within the last two years not being in the ordinary course of business;
Stating that “[a]ssociated company and related party transactions totalled $64,185,426… All transactions were in the normal course of business, are fully secured and, except for …, are at rates not less than the company’s cost of funds.” (p32);
Stating that the company was supported by an undrawn committed bank $150 million cash facility.
…
[15] The charge is brought under s 240(1)(c) of the Crimes Act:
240 Obtaining by deception or causing loss by deception
(1) Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—
...
(c) induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or
....
(Emphasis added)
[16] I have highlighted those parts of s 240(1)(c) that are relevant to the present application. I understand counsel agree that my approach to those elements should
be guided by the Court of Appeal’s decision in Morley v R.10 In that case, the Court was dealing with s 240(1)(d), which involves proof of a caused loss. Adapting the test enunciated in Morley, I must decide whether the Crown has proved beyond reasonable doubt that the Secretary’s execution of the Guarantee Deed was induced or caused by any false representations. The deception need not be the only operative factor, so long as it played a material part in occasioning the execution of the document.
[17] During argument on 7 May 2014, a subtle difference between the Crown’s and the accused’s perception of the legal test emerged:
(a) On the Crown’s view, what must be proved is that, had Treasury known of any material false statements, Mr Whitehead would not have signed the Guarantee Deed on 19 November 2008. On the Crown case, it does not matter whether South Canterbury would later have been admitted to the Crown Guarantee Scheme. It is what would have happened on the day that the Guarantee Deed was signed that assumes paramount importance.
(b)On the other hand, the accused contend that the Crown must prove not only that Mr Whitehead would not have executed the Guarantee Deed on 19 November 2008, but also that any proved false representations were such that the Crown would never have allowed South Canterbury to enter the Crown Guarantee Scheme. The accused’s position is that South Canterbury’s size was such that, for systemic reasons, it is not realistic to suggest that it would be excluded from the
scheme.11
[18] Mr Corlett, for Mr Sullivan, did not ask me to rule on that issue at this stage. He indicated that counsel for all accused considered that legal issue should be left until closings. Mr Carruthers QC, for the Crown, seemed to prefer that the point be
addressed before the Crown closed its case. Be that as it may, Mr Corlett appeared
10 Morley v R [2009] NZCA 618, [2010] 2 NZLR 608 (CA) at para [34].
11 See the information set out in paras 4 and 5 of a memorandum submitted to the Secretary; set out at para [43] below.
to accept that I was likely to determine the Crown’s application based on its asserted legal position. No other defence counsel took a different view. I proceed on that basis.
(b) The s 344A application: legal principles
[19] The starting point for analysis is ss 367(1) and 368 of the Crimes Act 1961:
367 Evidence and addresses
(1) Upon the trial of any accused person, counsel for the prosecution may open his case and after such opening (if any) shall be entitled to call such witnesses as he thinks fit; and the accused person, whether he is defended by counsel or not, shall be allowed at the end of the case for the prosecution, if he thinks fit, to open his case, and after such opening (if any) shall be entitled to call such witnesses as he thinks fit.
…
368 Adjourning trial for witnesses
(1) If the Court is of opinion that the accused is taken by surprise, in a manner likely to be prejudicial to his defence, by the production on behalf of the prosecutor of a witness who has not made any deposition, and of the intention to produce whom the accused has not had sufficient notice, the Court may, on the application of the accused, either adjourn the further hearing of the case or discharge the jury from giving a verdict, and postpone the trial.
(2) If the Court is of opinion that any witness who is not called for the prosecution ought to be so called, it may require the prosecutor to call him, and, if the witness is not in attendance, make an order that his attendance shall be procured; and the Court may, if it thinks proper, adjourn the further hearing of the case to some other time during the sittings until that witness attends.
(3) If in such case the Court is of opinion that it would be conducive to the ends of justice to do so, it may, on the application of the accused, discharge the jury and postpone the trial.
[20] While, at some stages during argument, it was suggested that the Crown was seeking an indulgence, that is not so. Section 367(1) entitles the Crown “to call such witnesses” as it thinks fit. The Crown is not limited to calling those witnesses from whom a statement or a brief of evidence has been taken. Nor is it unable to call a
witness whose written statement has not been disclosed to an accused.12
12 Criminal Disclosure Act 2008, ss 13(3)(a) and (b) and 34.
[21] In the first instance, the accused’s fair trial rights are protected by s 368 of the Crimes Act. That requires the Court, on objection being taken, to consider whether an accused has been “taken by surprise, in a manner likely to be prejudicial to his defence” by the production of a witness of whom he or she has not had sufficient notice. Section 368(1) confers a discretion on the Court “either [to] adjourn the further hearing of the case or discharge the jury from giving a verdict, and postpone the trial”. As I am conducting the trial without a jury, the second option must be characterised as one that would see the trial aborted, with a direction for a re-trial. It would be rare to abort a trial conducted without a jury given the greater degree of flexibility inherent in such a trial.
[22] Is there an additional jurisdiction whereby the Court can prevent the Crown from calling a witness of whom it has not notified the accused? This point was considered in R v Accused(CA247/91).13 Remembering that the comprehensive disclosure regime contained in the Criminal Disclosure Act 2008 had not been enacted at the time of that decision (1991), Cooke P, for the Court of Appeal, said:14
It is the standard and proper practice to supply the defence with a copy of the brief of the proposed new evidence: see Commissioner of Police v Ombudsman [1988] 1 NZLR 385, 393-394, 399-400. If this practice is not followed the ordinary remedy of the defence is to ask for an adjournment or postponement. We accept, however, that there may be cases in which under the inherent jurisdiction to ensure a fair trial the trial Judge may rightly conclude that an adjournment or postponement would be unduly prejudicial to the accused, and may decline to allow the prosecution to add to the scope of the proposed evidence or to call an added witness. Some unreported rulings of that kind are collected in a ruling of Tompkins J in R v Murray (New Plymouth, T 17/90, 6 March 1991). These rulings have been given on applications by the Crown for leave to call additional evidence. Such applications represent an appropriate practice, but the basic jurisdiction is the inherent one as just mentioned.
....
(Emphasis added)
[23] In R v Sinclair (an earlier case, but not one to which the Court of Appeal had referred), Fisher J made an order preventing the Crown from calling a witness of
whom the accused had had insufficient notice.15 At the outset of the accused’s trial
13 R v Accused(CA247/91) [1992] 2 NZLR 187 (CA).
14 Ibid, at 193.
15 R v Sinclair (1991) 7 CRNZ 565 (HC).
on one count of murder, the Crown sought to call two additional witnesses. One was intended to give forensic evidence about blood found in various places throughout the house at which the crime was said to have occurred, and on the clothing of the deceased and the accused. The other was to say that there was no alcohol in the bloodstream of either the deceased or the accused when examined after the fatal incident.
[24] No prior disclosure of this evidence had been made. The nature and proposed content of the evidence was conveyed to counsel for the accused on the last working day (a Friday) before the trial was to begin (the following Monday). Fisher J said:16
Mr McDonald [for the Crown] has not challenged the assumption that there is jurisdiction to reject the fresh evidence but directs his submissions to the exercise of an assumed discretion in that regard. Certainly it is clear from s
368 Crimes Act 1961, as well as inherent jurisdiction, that an adjournment can be granted where fresh evidence prejudicially takes the defence by surprise. No one has asked for an adjournment. I approach the matter on the basis that the Crown seeks to lead the evidence at a trial commencing today and not at some trial in the future. Whether, if the Crown insisted on calling the evidence, the ultimate sanction could go any further than adjourning the case is not something upon which I need comment.
Without trying to limit the discretion in these matters, it seems to me that three considerations will usually be of particular relevance in deciding whether the Crown should be permitted to lead late additional evidence at a trial starting immediately: (i) whether there are legitimate reasons for the late notice, (ii) whether the delay has prejudiced the defence, and (iii) whether any such prejudice ought be dealt with by way of an adjournment.
[25] In considering whether an adjournment was preferable to a direction that the
Crown not call the evidence, Fisher J added:17
The third consideration is whether, in all the circumstances, there should be an adjournment. If the evidence had seemed important to the Crown case, I would have been more inclined to adjourn. However, on my assessment of the case the evidence is not of great consequence. That might be reflected in the fact that it was not called, for example, at the preliminary hearing. The Crown has ample other evidence of far greater weight. This evidence would be peripheral.
In the finish, the question is whether it would be just to allow the evidence to be admitted in a trial starting immediately. I do not think so. One appreciates the pressures that the Crown is under but I would not wish to encourage the assumption that these last-minute briefs will always be accepted. I therefore
16 Ibid, at 566–567.
17 Ibid, 567–568.
propose to ... exclude the proposed DSIR evidence. I do not imagine that this course would be taken often.
[26] It is settled law that the inherent jurisdiction of the Court can only be exercised in a manner that is not inconsistent either with some statutory or regulatory provision.18 Since R v Accused(CA247/91) was decided, the Evidence Act 2006 was enacted. Section 8 of that Act provides that a Court may exclude otherwise admissible evidence if “its probative value is outweighed by the risk that the evidence will” have an “unfairly prejudicial effect on the proceeding”.19
[27] A similar jurisdiction was available at common law, but it focussed more precisely on prejudice to the accused, as opposed to the proceeding.20 In my view, the s 8 jurisdiction has superseded both that common law rule and the inherent jurisdiction considered in R v Accused(CA247/91). That is clear, in my view, from the terms of s 7(1) of the Evidence Act which states:
7 Fundamental principle that relevant evidence admissible
(1) All relevant evidence is admissible in a proceeding except evidence that is—
(a) inadmissible under this Act or any other Act; or
(b) excluded under this Act or any other Act.
….
[28] It follows that jurisdiction to exclude relevant evidence can spring only from a statutory provision. Section 8 is the only provision that could apply in this case. It states:
8 General exclusion
(1) In any proceeding, the Judge must exclude evidence if its probative value is outweighed by the risk that the evidence will—
(a) have an unfairly prejudicial effect on the proceeding; or
(b) needlessly prolong the proceeding.
18 For example, see Zaoui v Attorney-General [2005] 1 NZLR 577 at paras [36]–[37] of the reported Supreme Court judgment.
19 Evidence Act 2006, s 8(1)(a).
20 See, for example, R v During [1973] 1 NZLR 366 (CA) at 375.
(2) In determining whether the probative value of evidence is outweighed by the risk that the evidence will have an unfairly prejudicial effect on a criminal proceeding, the Judge must take into account the right of the defendant to offer an effective defence.
[29] The purposes of s 8 can be gleaned from observations made in a Law Commission’s report that led to enactment of the Evidence Act 2006.21 Among other things, the Commission said:
C56 [Section 8] is the general head under which relevant evidence may be excluded. To a considerable extent, s 8 codifies the existing common law rules for exclusion, embodied in the term “sufficient relevance” or “legal relevance”, and makes it clear that relevant evidence can only be excluded if, on balance, its negative effect actually outweighs its probative value. Section 8 is in addition to – and overrides – specific rules on the admissibility of evidence. Thus, s 8(1) may nevertheless exclude relevant evidence that meets specific admissibility requirements.
…
C58 The positive side of the balancing principle in s 8(1) is “probative value”. Probative value will depend on such matters as how strongly the evidence points to the inference it is said to support, and how important the evidence is to the ultimate issues in the trial.
C59 Under s 8(1)(a) the test for excluding unfairly prejudicial evidence is not met if the evidence is simply adverse to the interests of, say, a defendant in a criminal proceeding, since any evidence from the prosecution is going to be prejudicial to the defendant. The evidence must be unfairly prejudicial. There must be an undue tendency to influence a decision on an improper or illogical basis, commonly an emotional one; for instance, graphic photographs of a murder victim when the nature of the injuries is not in issue. Evidence will also be unfairly prejudicial if it is likely to mislead the jury; for example, if it appears far more persuasive than it really is, as is occasionally the case with some types of expert and statistical evidence. The judge will need to consider whether any misleading tendency can be countered by other evidence that is likely to be available, or by a suitable direction to the jury. Whether evidence has an unfairly prejudicial effect must be considered in terms of the proceeding as a whole, and not just from the point of view of a particular party or a defendant.
[30] The draft cl 8(1)(a) of the Evidence Code that the Law Commission prepared referred to an “unfairly prejudicial effect on the outcome of the proceeding”, whereas, as enacted, the broader expression “unfairly prejudicial effect on the proceeding” has been used. For reasons that follow, I consider that the broader
formulation is consistent with Parliament’s objectives, in that it permits prejudice to both the Crown and the accused to be taken into account. Therefore, s 8(2) requires a Judge, in weighing those two factors to “take into account the right of [an accused] to offer an effective defence”.
[31] Mr Eaton QC, for Mr McLeod, referred me to a decision of the Court of Appeal in Fan v R.22 He submitted that was authority for the proposition that the inherent jurisdiction could be used in a case such as this, notwithstanding enactment of s 8 of the Evidence Act. In that case, the Court held that there was jurisdiction to exclude evidence on grounds of unfairness that did not arise out of the obtaining of evidence by the prosecution, a situation not envisaged by s 30 of the Evidence Act.
In my view, Fan can be seen as a case in which it was proper to invoke the inherent jurisdiction preserved by s 11 of the Act because there was no statutory provision that expressly, or by necessary implication, excluded that course.23 I distinguish Fan from the situation in this case, where s 8 can deal adequately with the jurisdiction previously recognised in R v Accused(CA247/91); and indeed has extended the boundaries of that jurisdiction to unfair prejudice to the proceeding.
[32] In determining whether to exclude evidence under s 8, an assessment must be made of whether its prejudicial effect on the proceeding outweighs its probative value. There is no jurisdiction for the Court to exclude (otherwise) relevant evidence to sanction either the Crown or an accused for not having abided by earlier assurances about the way in which it would run its case. In such a case, the ultimate sanction is to abort the trial to ensure fair trial rights are preserved.
[33] The balance to be struck between probative value and prejudicial effect is an evaluative decision, not the exercise of a discretion.24 Prejudicial effect must be considered from the perspective of both Crown and accused.25 The specific reference to the ability of an accused to mount an effective defence emphasises the importance of an accused’s fair trial rights. But, the interests of the community in
prosecuting alleged serious criminal activity is also important.
22 Fan v R [2012] 3 NZLR 29 (CA).
23 Ibid, at paras [16]–[31].
24 R v Gwaze [2010] NZSC 52, [2010] 3 NZLR 734 at paras [50] and [51].
25 See Wi v R [2009] NZSC 121, [2010] 2 NZLR 11 at para [20].
[34] While Mr Squire, for Mr White, expressed concern that s 8 might be more restrictive than the inherent jurisdiction of the Court (because of its focus on unfair prejudice to the proceeding, as opposed to the accused), I consider that the notion of unfair prejudice is a broad concept that should take into account all factors relevant to the way in which the proceeding is conducting. For example, I do not consider that the factors to which R v Accused(CA247/91) or R v Sinclair refer would fall outside the ambit of s 8(1). All of those factors are relevant to the need for an accused to present an effective defence, as part of the right to a fair trial guaranteed
by the New Zealand Bill of Rights Act 1990.26
(c) The proposed evidence
[35] Dr McCulloch’s proposed evidence is directed to the question whether any false representations made to Treasury on behalf of South Canterbury either induced or caused the Secretary to execute the Guarantee Deed. The advantage to the Crown in calling Dr McCulloch lies in his ability to explain the processes followed by Treasury in relation to South Canterbury’s specific application. That is the point of difference between the evidence that he can give, and that already given by Mr Park.
[36] In a memorandum filed in response to my earlier directions, counsel for the Crown have explained why the original decision not to call Dr McCulloch was made. After referring to the arrangements made for a draft brief of evidence to be prepared for a Treasury representative, counsel continued:
4.Dr McCulloch’s seniority and the very documentary nature of his evidence meant that Dr McCulloch was not asked to write his brief himself in the first instance. The brief was sent to him and the Treasury Solicitor, Mr Stephen Revill, for him to consider and settle.
5. Treasury responded by having Mr Park provide the evidence instead.
Mr Park was then junior to Dr McCulloch and appeared to be more readily available. He was also responsible for the [Crown Guarantee
Scheme] for the bulk of the time [South Canterbury] was in it.
Crown Counsel were content with that course for committal purposes, but intended to revisit it before trial.
6.In late 2013, that was done. Mr Gardyne contacted Treasury to raise the issue of Dr McCulloch giving evidence. He liaised with Dr McCulloch and Mr Revill to meet with them.
7.Unfortunately that turned out to be difficult, as Dr McCulloch was busy and frequently unavailable. It became plain that it would be a real imposition on him and Treasury to have him come to Timaru to give evidence. He was willing to do so but Crown Counsel wanted to minimise the burden on him and Treasury if possible. It was not until early December 2013 that he was able to be interviewed.
8.Crown Counsel conferred in November and December to consider whether he should give evidence. There was no concern that his evidence might be unhelpful or that he might not “come up to brief”. To the contrary, his evidence and that of Mr Park were treated as largely interchangeable.
9.It was appreciated that Dr McCulloch was present at the time that [South Canterbury] entered into the [Crown Guarantee Scheme] and Mr Park was not, and that Dr McCulloch was involved in assessing the application and Mr Park was not. But it was thought that little would turn on that ….
….
[37] The Crown’s stance on the need to call Dr McCulloch changed following completion of Mr Park’s evidence. Mr Carruthers QC, in written submissions presented on 7 May 2014 said:
7.The [s 344A] application is brought because three things have changed since the Crown decided not to call Dr McCulloch. But it is important to record that whether or not that original decision was right or wrong is beside the point. Section 8 does not allow the exclusion of evidence as a sanction on the Crown. Even if this evidence that should always have been called, the question is still whether it is it will have an “unfairly prejudicial effect on the proceeding” if it is now called.
8.The three things that have changed since the Crown determined this evidence would not be called are:
(a) The defence has adduced various documents that Dr
McCulloch can speak directly to, but Mr Park could not.
(b) The defence now appear to put at issue whether there is “admissible evidence” of entry into the [Crown Guarantee Scheme];
(c) The defence now clearly intend to rely upon the Auditor- General’s report for the truth of its contents. If such hearsay evidence is to be relied upon, it should be tested by someone able to speak to the facts and conclusion set out in it.
9.The first point was advanced at the hearing on Wednesday 30 April and will be well understood by Your Honour. The amended draft brief now sets out in full what Dr McCulloch will say about the documents in question. It is clear he is in a position to give context
and explanation to certain documents, adduced by the Defence, that
Your Honour is going to be asked to interpret and rely upon.
10.The second point was made in the Notice of Application. But the position has moved on since then. Mr Corlett made the submission in opposition to the application that there was “no admissible evidence” regarding entry into the [Crown Guarantee Scheme]. That is a significant shift in the Defence position given that no objection was taken to any aspect of Mr Park’s evidence, nor to any of the documents that on their face set out the procedure adopted. If that objection is to be maintained, then it is in the interests of justice for evidence to be called that puts the point beyond question, rather than leaving it open for argument.
11. The last point only emerged during Mr Corlett’s submissions. The Defence put into evidence the Report of the Auditor-General into the [Crown Guarantee Scheme]. At the time the question of whether that report could be relied upon for the truth of its contents was expressly reserved for later determination. However, it is now clear that the Defence intend to rely upon it for that purpose in closing, and ask Your Honour to make findings based on facts and conclusions contained in it.
12.If the Defence intends to invite Your Honour to do so, then the document should be tested, by the relevant parts relied upon being put in cross-examination to a witness who can comment directly on them. Dr McCulloch is that person It is not fair for a document containing lengthy and contentious hearsay to be relied upon, without that being put to a witness who can speak to the matters at issue.
(Emphasis added)
[38] I agree with Mr Carruthers that Dr McCulloch’s proposed evidence is “largely interchangeable” with that of Mr Park.27 While it is fair to say that Dr McCulloch can speak more directly to the contemporary documents than could Mr Park, to my mind, the differences are ones of degree. In particular, Dr McCulloch personally considered the application for the purpose of making a recommendation to the Secretary, and also attended a meeting with the Secretary on 19 November
2008, the purpose of which was “to explain to Mr Whitehead the basis for the recommendation set out in the Notes of Meeting ... and (if the Secretary agreed with the recommendation, as was the case here) to obtain the Secretary’s signature to the Guarantee documents”.
[39] Dr McCulloch concludes his proposed evidence by asserting that if Treasury had known that there were misleading or false statements in the two prospectuses and the audited financial statements proffered in support of South Canterbury’s application, then “[at] the very least the application would have been delayed while Treasury got to the bottom of any issues and formed a view on what to do”. Nevertheless, as Dr McCulloch was not the ultimate decision-maker, and Mr Whitehead is not being called to give evidence, the Crown’s case remains one based on inference.
[40] Mr Park gave evidence of the existence of policy guidelines that had been approved by the Minister of Finance,28 under which the Secretary exercised delegated authority in relation to management and administration of the Crown Guarantee Scheme. The “Overarching Principles” were summarised in the policy guidelines, to which Mr Park referred in evidence. They state:
Overarching Principles
The grant of a Crown Guarantee to an Entity must be “necessary or expedient in the public interest”.
The key “public interest” factors when considering the provision of a Crown
Guarantee are:
athe maintenance of public confidence in New Zealand's financial system; and
b maintaining the confidence of general public depositors in New
Zealand financial institutions.
[41] The policy guidelines also identified relevant criteria, the most significant of which for present purposes are:
Relevant Criteria
…
a The size of the Entity;
bThe credit worthiness of the Entity, including any rating agency reports on the Entity;
c The number of depositors in the Entity;
d The related party exposure of the Entity;
e The quality of the information provided by the Entity;
f Whether the accounts of the Entity are audited;
g That the business practices of the Entity meet reasonable standards;
h That the individuals with control of the Entity are of good character,
iThat the individuals with control of the Entity have the business experience and acumen relevant to the operation of the Entity;
jWhether, and the extent to which, the Entity's overall business is bank-like in nature;
k The length of time the entity has been in business;
IThe track record of the entity with respect to such matters as whether it has met its payments as they fell due and maintained solvency;
m The importance of the entity to the New Zealand financial system;
and
n Any other factors relevant to:
- the maintenance of public confidence in New Zealand's financial system; and
- maintaining the confidence of general public depositors in New
Zealand financial institutions.
[42] Mr Park gave evidence that, before Treasury embarked on its evaluative tasks, analysts from the Reserve Bank would consider a particular application and supporting information. The Reserve Bank’s view on eligibility would then be transmitted to Treasury. In the case of South Canterbury, that was done by letter dated 6 November 2008 from the Head of Prudential Supervision of the Reserve Bank. He wrote to the Secretary in these terms:
Crown Deposit Guarantee Scheme
South Canterbury Finance Ltd.
1.The Reserve Bank of New Zealand (the “Bank”) has considered the following material in relation to South Canterbury Finance Ltd (the “Entity”).
Letter of Application dated October 14, 2008
Companies Register
South Canterbury Finance Ltd: Prospectus 59 dated October 24,
2008
Letter from Trustees Executors Ltd dated November 4, 2008
2.The Bank confirms that as of November 6, 2008 the Entity is the following type of entity eligible to apply for a guarantee under the Policy Guidelines.
Finance Company Type A
And meets all of the Relevant Criteria set out in the Policy
Guidelines.
3.The Bank further confirms that, based on the material it has considered, and having considered other factors that might be relevant in coming to a decision as to whether or not to offer or refuse a Crown Guarantee, the Bank has no reason to believe that it would not be in the public interest and consistent with the maintenance of public confidence in New Zealand’s financial system and the maintenance of confidence of general public depositors in New Zealand financial institutions, as referred to in the purpose of the Public Finance Act, the preamble to the deed and in the overarching principles of the Policy Guidelines, to invite the Entity to enter into a Deed of Guarantee with the Crown.
[43] After the Reserve Bank’s processes had been completed, Treasury officials completed the relevant assessments. Dr McCulloch was party to the preparation of a memorandum the purpose of which was to provide a recommendation to the Secretary on whether South Canterbury should be admitted to the Crown Guarantee Scheme. He and Treasury Solicitor, Ms Meares, attended a meeting on 19
November 2008 with the Secretary, at which time the memorandum was submitted to him for consideration. The memorandum read:
1. [Reserve Bank] letter received. Finance company type A.
2.No reason to believe it would not be in the public interest to enter into the guarantee.
3. [Reserve Bank] raised no concerns. Trustee is Trustees Executors
Limited. Clean Trustee letter. Confirms no known breach of deed.
4.This is a large Finance company, total deposits are $31 million, debentures and bonds total $1,507 million and therefore total debt securities are $1,538 million with approximately 37,000 depositors.
5.As a very significant finance company it is clear it would have a very significant effect on public confidence in financial institutions in New Zealand and in the confidence of depositors generally and is necessary or expedient to grant a guarantee.
(d) What is the probative value of the proposed evidence?
[44] The primary rule of evidence is that all “relevant evidence” is admissible in a proceeding unless made inadmissible under any enactment, or excluded by a Judge exercising jurisdiction under any statute.29 Evidence is relevant “if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding”.
[45] In R v Bain, Elias CJ, delivering the judgment of the Supreme Court, said:30
[39] ... [Sections 7 and 8] reflect the modern treatment of evidence, building on the work of Thayer and Wigmore, which draws a distinction between rejection of evidence because it is not relevant and the rejection of relevant evidence because of legal policy based on the experience that some relevant and material evidence is an unsafe foundation for fact finding. Thus the Australian Law Reform Commission in its interim report on evidence in
1985 distinguished between relevance and exclusion of relevant evidence, on
the basis that relevance determines “whether evidence could relate to an issue” while exclusion of relevant evidence is concerned with whether the importance of the relationship with proof is “worth the price to be paid by admitting it in evidence”. This is the approach followed also by the New Zealand Law Commission and adopted in the Evidence Act.
(footnotes omitted)
[46] There is no dispute that the proposed evidence of Dr McCulloch is relevant to the question whether the Secretary was induced, on 19 November 2008, to sign the Guarantee Deed, by any false representations made on behalf of South Canterbury. While it does not provide direct evidence of the reasons for the Secretary’s decision, it provides context from the perspective of a person involved in the decision-making process. Nevertheless, it does not take the Crown case much further than it stood after Mr Park’s evidence had been completed.
(e) Does the unfairly prejudicial effect outweigh the probative value?
[47] Having decided that Dr McCulloch’s evidence is relevant and admissible, the
next question is whether it should be excluded on the basis that its probative value is outweighed by its prejudicial effect on the proceeding.
29 Evidence Act 2006, s 7(1).
30 R v Bain [2009] NZSC 16, [2010] 1 NZLR 1.
[48] The probative value of Dr McCulloch’s proposed evidence is to be measured by reference to the evidence given by Mr Park, the documentary evidence to which he referred in evidence in chief, and that produced through him in cross- examination.
[49] In my view, Dr McCulloch’s proposed evidence has marginal probative value. I already have evidence from Mr Park of the procedures undertaken by Treasury, in conjunction with the Reserve Bank, when a decision was made to enter into the Guarantee Deed. Dr McCulloch cannot give evidence of what actually induced (or caused) Mr Whitehead to execute the Guarantee Deed. Dr McCulloch can go no further than to refer to the notes prepared by himself and the Treasury
solicitor to explain why a recommendation was made.31
[50] I am not persuaded that the Crown’s assertions of “changes” add to the value of the proposed evidence.32 Dr McCulloch cannot add anything of significance to explain the documents that were put to Mr Park. The accused are not contending that there is no “admissible evidence” of entry into the Crown Guarantee Scheme. It is self-evident from the Guarantee Deed of 19 November 2008 that South Canterbury was admitted to the scheme. To the extent that the accused intend to rely on the Auditor-General’s report, the evidential status of factual assertions in that report is yet to be determined.
[51] Ultimately, it will be for me to determine, as finder of fact, whether the contemporary documentary material on which the Crown relies is sufficient for the Crown to prove beyond reasonable doubt that the provision of false information by South Canterbury was a material operating cause of the Secretary’s decision to sign the Guarantee Deed. That position pertains whether the Crown or the accused is right on the legal point to which I referred earlier.33
[52] Mr Corlett submitted that the Crown’s late decision to call Dr McCulloch has caused unfair prejudice to the accused and infringed their fair trial rights. In
31 See para [43] above.
32 See para 8 of the Crown’s memorandum set out at para [37] above.
33 See para [17] above.
particular, he submitted that non-party disclosure applications34 that would have been made to challenge evidence from Dr McCulloch on what actually influenced the decision-making process could not now be made and documents obtained and considered within a reasonable time. Mr Corlett referred to the possibility of seeking relevant interview notes (including, possibly, Dr McCulloch’s) made by or on behalf of the Auditor-General when considering her remit to report on management of the Crown Guarantee Scheme. Further, he identified a need to obtain disclosure of all Reserve Bank or Treasury documents relevant to any inquiries about the related party lending in issue. Other inquiries were also foreshadowed, but many of those are, in my view, unlikely to provide material that would directly assist in cross- examining Dr McCulloch.
[53] In days gone by, a Court would have been loath to adjourn a trial for the reasons given by Mr Corlett. That mindset has been changed by the terms of the Criminal Disclosure Act. Its purpose is to enhance fair trial rights. It provides a mechanism whereby an accused can receive disclosure as of right from the prosecutor, and at the discretion of the Court, from non-parties.35 I cannot say that an intention to seek the type of non-party disclosure to which Mr Corlett has referred
in respect of the Auditor-General, and internal Reserve Bank or Treasury documents is unreasonable. Indeed, since the s 344A argument was completed, I have heard evidence from the case manager for the Serious Fraud Office investigation. She confirmed that no steps had been taken by that Office to obtain all internally generated Reserve Bank or Treasury documents relevant to the inducement/causation issue.
[54] If Dr McCulloch were to be called, I would need to allow the accused time to seek non-party disclosure orders, to hear any contested applications and to allow time for their counsel to consider any relevant documentation actually disclosed. That process could not begin until after evidence was given by the Crown’s forensic accounting expert, Mr Graham, which is now due to commence on 26 May 2014. Until then, counsel for the accused are fully engaged in preparing for opposed disclosure applications and an important cross-examination.
[55] The trial began on 12 March 2014. It had been set down about one year before that to ensure all pre-trial issues were adequately addressed. The original estimate was that this trial would be completed by the end of June 2014. At present, it seems that estimate is likely to be right, though closing addresses may need to be deferred until July.
[56] I have no doubt that the need to allow time to the accused to prepare adequately for Dr McCulloch’s cross-examination before closure of the Crown case would significantly delay the trial and put completion of the hearing within that time in severe jeopardy. By the end of June 2014, the trial will have been running for about four months. The need for further inquiries to be undertaken and the likely lengthening of the expected duration of the trial would add significantly to the cost being incurred by the accused in defending the charges. That, in itself, would also (having regard to the marginal probative value of Dr McCulloch’s proposed
evidence) needlessly prolong the proceeding, a factor to which s 8(1)(b) refers.36
[57] Unlike Sinclair, where two relatively short briefs of evidence were provided on the last working day before a trial for murder was due to begin, the application to admit Dr McCulloch’s evidence was made on the twenty-first day of a lengthy fraud trial, in which some 40,000 odd pages of documents have been disclosed; all of which have required consideration by the accused. There are 12 counts in the indictment which, as indicated earlier, span the period from 18 November 2004 to 20
July 2009. There are 18 individual decisions I must make in dealing with the charges against all accused.
[58] Given the marginal probative value of Dr McCulloch’s evidence, the risk that admission of it will have an unfairly prejudicial effect on the proceeding does not have to be high to outweigh it. To use the phrase adopted by Elias CJ in Bain,37 exclusion of relevant evidence is concerned with whether the importance of the relationship with proof is “worth the price to be paid by admitting it in evidence”. In my view, in this case, it is not.
[59] This is one of those rare cases in which it is necessary to rule relevant evidence of the type proposed to be given by Dr McCulloch inadmissible on the grounds that the risk of an unfairly prejudicial effect on the proceeding outweighs its probative value.
Result
[60] For those reasons, I rule against the Crown on its s 344A application. It may not call Dr McCulloch as a witness.
[61] I do not consider there is anything in this judgment that should be suppressed from publication at this stage. Unless counsel raise any issue before midday on Monday 19 May 2014, the Registrar shall make a copy of the judgment available to media interests at that time. I will hear from counsel on that issue if there were any objection to my proposed course.
[62] I thank counsel for their assistance on this application.
P R Heath J
Delivered at 4.30pm on 15 April 2014
Solicitors:
Serious Fraud Office, PO Box 7124, Wellesley Street, Auckland
Meredith Connell, PO Box 2213, Auckland
Gresson Dorman & Co, PO Box 244, Timaru
Rhodes & Co, PO Box 13444, Armagh, Christchurch
Duncan Cotterill, PO Box 5, Christchurch
Counsel:
C Carruthers QC, PO Box 305, Wellington 6140
P H B Hall QC, PO Box 3750, Christchurch
R B Squire QC, PO Box 10157, Wellington
J H M Eaton QC, PO Box 13868, Armagh, Christchurch
M Corlett, PO Box 4338, Shortland Street, Auckland
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