Russell v Ministry of Economic Development HC Auckland CRI-2010-404-239

[2011] NZHC 500

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2010-404-239

BETWEEN  JOHN GEORGE RUSSELL Appellant

ANDMINISTRY OF ECONOMIC DEVELOPMENT Respondent

Hearing:         16 May 2011

Counsel:         RAA Weir for Appellant

NH Malarao for Respondent

Judgment:      18 May 2011

JUDGMENT OF BREWER J

This judgment was delivered by me on 18 May 2011 at 4:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

SOLICITORS

DMA Burgess (Auckland) for Appellant
Meredith Connell (Auckland) for Respondent

COUNSEL RAA Weir

RUSSELL V MINISTRY OF ECONOMIC DEVELOPMENT HC AK CRI-2010-404-239 18 May 2011

Introduction

[1]      Mr Russell  appeals  against  his  convictions  and  sentence on  two  charges brought against him under the Receiverships Act 1993 (the Act).

[2]      The first charge[1] alleged an offence against s 5(1)(c)(i) of the Act in that:

... he acted as Receiver of Roma Properties Limited (in Receivership and in Liquidation) (“the company”) when he was a director of the company or had been a director within the period of two years immediately preceding the commencement of the receivership and therefore not qualified or eligible to be appointed.

[1] This charge was amended at the outset of the defended hearing.  Initially this was a ground of appeal but one which was not pursued before me.   In the circumstances, that was entirely appropriate.

[3]      The second charge alleged an offence against s 5(1)(c)(ii) of the Act in that

Mr Russell:

... acted as Receiver of Roma Properties Limited (in Receivership and in Liquidation) when he was a director of the mortgagee of the property in receivership, namely Glen Eden Holdings Limited.

[4]      Mr Russell represented himself at the trial.

The first information

[5]      The appellant puts the crucial issue as being whether the District Court Judge was entitled to hold that the central proposition of fact to be proved by the informant had been proved beyond reasonable doubt.  That proposition of fact was whether the appellant was  a director of Roma Properties Ltd  (Roma) in the relevant period (between 11 October 2007 and 14 March 2008) or had been otherwise a director within the period of two years immediately preceding the commencement of the receivership.

[6]      Roma was put into receivership and liquidation on 5 December 2002.  The

appellant’s case was that he had resigned as a director on 6 December 2002.  He was appointed  receiver  of  Roma  on  27 March  2006.  Therefore,  he  contended,  the

District Court Judge could not have found that he was a director of Roma between

11 October 2007 and 14 March 2008.

[7]      The problem with that submission is that there was no evidence upon which the District Court Judge could find as a reasonable possibility that Mr Russell had resigned as a director on 6 December 2002.

[8]      The “evidence” relied upon by the appellant was documents put into evidence at the trial by the prosecution under exhibit 10.  The documents consisted of a letter dated 20 June 2008 sent by the appellant to the liquidator and enclosures therewith. The  letter  stated  that  Mr Russell  had  resigned  as  a  director  effective  from

6 December 2002.  In it, Mr Russell told the liquidator that he enclosed “a copy of the notification I gave to the shareholders of the company and to the Registrar of Companies”.

[9]      It should be noted that by this date the charges had already been given a hearing date and the contents of the letter make it clear that Mr Russell was writing it in contemplation of that hearing.

[10]    The enclosure purporting to be a copy of the notification given to the shareholders was a copy of an undated handwritten note purporting to give notice by Mr Russell of resignation as a director effective from 6 December 2002.

[11]     The copy of the notification to the Registrar of Companies was the first page of a form headed “Notice of change of directors and particulars of directors”.  This was undated.  However, also enclosed was a copy of a letter from the Registrar of Companies dated 6 March 2006 returning the form as not being required.   The evidence was to the effect that the form would have been returned shortly after it was presented for filing.

[12]     The letter of 20 June 2008 and the handwritten note of resignation could not be given evidential weight by the District Court Judge.  They could not come within

the  hearsay  exception[2]   and  there  was  no  evidence  given  to  authenticate  them.

Apparently the prosecutor put them into evidence because he anticipated that the appellant would give evidence and he wished to ask prophylactic questions of one of the prosecution’s witnesses.  In the event, the defendant did not give evidence.

[2] See s 18 Evidence Act 2006.

[13]     Evidence that was properly before the District Court Judge was:

(a)      A letter to the liquidator dated 15 December 2002 by Mr Russell on behalf of Roma in which he signs his name over the signature block:

J.G. Russell

Director

Roma Properties Limited

(In Receivership and Liquidation)

(b)A  company  questionnaire  completed  by  Mr Russell  on  behalf  of Roma in which in answer to the question “Status In Company” he gives the answer “Director”.

(c)      The evidence of the liquidator that on no occasion was any notice received of resignation of Mr Russell as director, nor was there any communication to that effect prior to the 20 June 2008 letter.

[14]     Judge Wade, in the District Court, correctly reminded himself:[3]

The essential issue to me in relation to the purported resignation is whether the  Informant  has  satisfied  me  so  that  I  am  sure  that  the  purported resignation was never, in fact, made.

[3] Ministry of Economic Development v Russell (Reserved Decision) DC Papakura CRI 0800-450-

2437, 27 November 2008 at [9].

[15]     On the evidence before him, the Judge was quite correct to be satisfied beyond reasonable doubt that Mr Russell never resigned as a director and was still a director at the date he was appointed receiver.

[16]     That being the case, the appeal against conviction on the first charge must fail.  I do not need to consider the varying submissions as to whether, if the Judge

had not been entitled to find that Mr Russell had not resigned as a director, he would

have been entitled to find that Mr Russell had nevertheless been a director within the period of two years immediately preceding the commencement of the receivership.[4]

The second information

[4] It was a contention for the appellant that the two year period would have had to have been calculated with reference to the date upon which Mr Russell was appointed as the receiver and not on the date on which Roma was placed in receivership.

[17]     The point at issue in the second information is similar; namely, whether the District Court Judge was entitled on the evidence to find beyond reasonable doubt that in the material period (between 10 January 2008 and 10 July 2008) Mr Russell was a director of Roma’s mortgagee, Glen Eden Holdings Ltd (Glen Eden).

[18]     The appellant here relied upon an assertion that the debenture upon which the receivership was initiated had been assigned by Glen Eden to Kensington Developments Ltd prior to Mr Russell being appointed as receiver of Roma.

[19]     However, there is no admissible evidence of any such assignment.   During the course of the hearing, Mr Russell cross-examined a Ms Stone who was giving evidence on behalf of the liquidators.   Mr Russell showed her what he said was a copy of the deed of assignment of debenture and the Court allowed him to produce that copy through the witness as exhibit C.  However, Ms Stone said:[5]

I am not  aware  I have  seen  this  document  before.   The  11  May  letter included the appointment of receiver to Roma Properties Limited.   I don’t believe I’ve ever, I can’t recall having sighted the deed of the assignment of debenture.

[5] Notes of evidence, p 85, para [1039].

[20]     The witness was not a party to the document, had never seen it before, and had no knowledge of it.  The document itself did not appear to have been drawn by lawyers  and  Mr  Russell  was  the  only signatory  (apart  from  the  witness  to  his signature).

[21]     As  a  matter  of  trite  law,  the  deed  of  assignment  should  not  have  been permitted to have been produced through that witness because she had no knowledge

of it and could not authenticate it or give evidence as to its contents.  Although it

became part of the Court record it could be given no weight by the trial Judge because no evidence was ever given in relation to it.

[22]     Counsel for the informant also submitted that even if the debenture had been transferred to Kensington Developments Ltd on 28 February 2006, the District Court Judge would still have convicted Mr Russell because he was at that time also a director of Kensington Developments Ltd.[6]

[6] This on the basis that the Judge would have been entitled to amend the information to take account of the evidence put forward by Mr Russell.

[23]     Judge Wade appears to have given some weight to the deed of assignment but concluded:[7]

[7] Reserved Decision at [12]-[13].

As to the second Information, the position is precisely the same.   The mortgagee of the company’s property was Glen Eden Holdings Limited, in respect of which the Defendant was the sole Director since 1 April 1992.  It appears that the debenture granted to Glen Eden was assigned to Kensington Developments Limited on 28 February 2006 although, again, there was no oral  evidence  to  that  effect  but  only  a  purported  photocopy  of  the assignment.  However, there can be no doubt that the Defendant became a Director of the latter company on 1 April 2008 (see Exhibit 12).

Again,  therefore,  I  am  satisfied  it  is  proved  that  the  Defendant  never resigned as a Director of Roma Properties Limited and the offence is also made out  – see the definition of mortgagee in s 2(1) and (2) under the Receivership Act.

[24]     I would be more emphatic than the learned District Court Judge and simply hold that the purported assignment of the debenture could have no evidential weight. However, in the circumstances, I take the learned District Court Judge to be holding that it was a point which made no difference because the gravamen of the charge would still be made out.

Appeal against sentence

[25]     The sequence of events is that Judge Wade reserved his decision on the guilt or innocence of Mr Russell on the two informations.   He delivered his reserved decision on 27 November 2008, convicted Mr Russell and then moved immediately

to sentencing.   Counsel for the informant, Mr Malarao, had prepared sentencing

submissions  in  anticipation  of the Court’s  verdicts.   These did  not  contain  any

sentencing authority because none could be found.

[26]     His Honour decided that the two charges were:[8]

... very much of a similar nature and I strongly suspect that the second charge was brought simply out of an abundance of caution.  I think therefore I  ought  to  deal  with  the  offences  in  reality  as  one  by  imposing  the appropriate penalty I think appropriate, and then dividing the appropriate penalty by two to attribute the penalty to each individual information.

[8] Ministry of Economic Development v Russell (Sentencing Notes) DC Manukau CRI-2008-004-8698, 27 November 2008 at [5].

[27]     The  Judge  then  referred  to  the  Privy  Council  decision  of  Downsview Nominees Ltd v First City Corporation Ltd.[9]   The Judge had not seen that decision prior to sentencing and it was handed up to him with the informant’s sentencing submissions.  In giving his sentence judgment, he took note of the Privy Council’s finding as follows:[10]

The liability of Russell was firmly based not on negligence but on the breach of duty.  There was overwhelming evidence that the receivership of Russell was inspired by him for improper purposes and carried on in bad faith, ultimately verging on fraud.

[9] Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513.

[10] Sentencing Notes at [6]. This was a quote from Downsview at p 526, l 24.

[28]     The  other  aggravating  feature  that  Judge  Wade  took  into  account  is  the evidence that Mr Russell had been the director of well over 100 companies.   The Judge said:[11]

It was perfectly plain to me that Mr Russell had an intimate knowledge of the details of both the Receivership Act and indeed the Companies Act.  I therefore have to say that I am not persuaded that this breach was in any way shape or form a technical breach, but was quite a deliberate indeed cynical one.

[11] Ibid, at [7].

[29]     Judge  Wade  did  not  accept  the  informant’s  submission  that  the  overall

penalty should be in the order of $10,000.  Instead, he imposed a fine of $7,000 and divided that into a $3,500 fine in respect of each of the two informations.[12]

[12] Ibid, at [8].

[30]     The submission on behalf of Mr Russell was that he was taken by surprise and did not have an adequate opportunity to put his case for a more lenient sentence. Mr Weir submitted that it was unfair to rely on the decision of the Privy Council. That was a completely different case, decided some 10 years prior.

[31]     I approach the matter afresh.  The maximum penalty for each offence was a fine of $10,000.  Parliament has, therefore, enacted that in the worst case – with no evil beyond the ingredients of the offence – a fine of $10,000 could be imposed.  For two offences, a fine of $20,000 could be imposed.

[32]     Here, there was a very experienced company director who had previously been found to have acted improperly in his capacity as a receiver.   I accept the submissions of the informant that the purpose of the provisions in ss 5(1)(c)(i) and (ii) is to prevent a person who has had a direct or indirect interest in the shareholding or management of a company prior to it being placed in receivership from holding the office of receiver.  Here, in essence, Mr Russell acted in his capacity as director of Glen Eden to place Roma in receivership.  He continued as a director of Roma and later, through either Glen Eden or Kensington, appointed himself as receiver. He was then a director of Roma, a director of its mortgagee and its receiver.  He had placed himself in the very situations which the Act prohibited.

[33]     I accept that it would have been better for Judge Wade to have ensured that the appellant had more time to digest the sentencing submissions of the prosecution and to respond to them.   However, for myself, I cannot see that the sentence was manifestly excessive or inappropriate.

Conclusion

(1)       The appeals against conviction are dismissed. (2)       The appeal against sentence is dismissed.

Brewer J