Home | Databases | WorldLII | Search | Feedback Court of Appeal of New Zealand

Ludlow v R [2013] NZCA 83 (27 March 2013)

Last Updated: 3 April 2013

JUDGMENT OF THE COURT

A The appeal against conviction is dismissed.

2. The appeal against sentence is adjourned to be heard with the appeal in Ludlow v R CA727/2012.

____________________________________________________________________

REASONS OF THE COURT

(Given by Asher J)

Introduction

[1] Mr Ludlow was found guilty by Judge Bouchier after a trial before a Judge-alone at the District Court at Auckland on six counts of theft by a person in a special relationship, and one count of omitting a material particular from a document with intent to deceive.[1] On 20 October 2011, he was sentenced to five years and seven months’ imprisonment.[2]
[2] Mr Ludlow appeals against both his conviction and sentence. He has appeared for himself on this appeal, as he did in the District Court. He has filed three volumes of material, including handwritten submissions.

Background

[3] Mr Ludlow was the sole shareholder and director of National Finance 2000 Ltd (National Finance) at the date of its creation. National Finance went into receivership in May 2006.
[4] His wife Carol Braithwaite and another became directors in April 2000, as did a barrister Anthony Banbrook in March 2002. One of the employees of the company was an accountant, John Gray. It was the Crown case that Mr Ludlow was in control of the company.
[5] National Finance operated in the financial services market, offering motor vehicle finance. Members of the public were able to invest in the company through secured debenture stock and unsecured subordinated promissory notes. National Finance would offer finance to car buyers through licenced motor vehicle dealers. The loans were generally to purchasers who had poor credit or low income. The average loan size was $5,000.
[6] Many of the loans were made to persons who purchased motor vehicles from the Payless Cars group of companies. Mr Ludlow was the sole director and shareholder of those companies. Those companies all went into receivership following the failure of National Finance.
[7] Mr Ludlow had previously owned a different financial services company, National Finance Ltd, which had failed. In the 2005 prospectus for National Finance, there was reference to that earlier venture. It was stated that by 1997, National Finance Ltd had a shortfall in its accounts of $625,924. National Finance Ltd entered into a creditors’ compromise and as part of that compromise the creditors agreed to Mr Ludlow setting up a new finance company, National Finance 2000 Ltd.
[8] Covenant Trustee Company (Covenant) was the trustee under the trust deeds. The trust deeds contained restrictions on related party lending. There were limits on the amounts National Finance could lend to any person who was classified as a related party. Related parties included anyone who was a shareholder or director of the company. This included Mr Ludlow and Ms Braithwaite who were both directors of National Finance. A related party included any company that was owned by 10 per cent or more by a director or shareholder of National Finance or any of their family members. The Payless Cars group of companies fell into that category.
[9] National Finance could lend to related parties with the prior consent of the trustee. Loans made without the trustee’s consent had to be in writing, in the ordinary course of business, and at arm’s length as between unrelated companies contracting in the open market. They had to be at market rates.
[10] Even then only a specified quantum of lending was permitted, and the lending had to be reported. Restricted related party transactions could not exceed two per cent of National Finance’s total tangible assets. There was also a limit on the amount National Finance could lend to any one borrower. The reporting to Covenant had to accurately record the transactions.

This appeal

[11] It is difficult to set out with precision Mr Ludlow’s grounds of appeal. The actual notice of appeal does not set out specific grounds. His written submissions are unfocussed, and in oral submissions before us he did not speak to those submissions but rather referred to particular matters to which he wished to bring to our attention.
[12] Because of this, we propose going through each count to see whether there was a proper basis for the convictions. However, we can record certain particular themes that run through Mr Ludlow’s submissions to us.
[13] Mr Ludlow argued that the accountant Mr Gray had deceived him and the company’s auditor. The transactions in question were at the initiative of Mr Gray, and any fraud was his fraud.
[14] Mr Ludlow submitted that he was not aware of the fact that breaches of the requirement of the trust deed were occurring. He delegated all matters relating to securities to Mr Gray. He referred to s 138 of the Companies Act 1993, which provides that a director may rely on information prepared or supplied and on professional expert advice.
[15] Mr Ludlow referred to documents not being disclosed by the Crown. He compared the reasons for verdict given by the District Court Judge with those of Wylie J in the case of R v Douglas.[3] The reasons given in R v Douglas were detailed. Mr Ludlow submitted that the Judge erred throughout her judgment by providing insufficient reasons for her verdict. He further submitted that the verdict of the Judge was unreasonable and could not be supported having regard to the evidence.
[16] Given the wide range of these submissions we will briefly examine each count. It is necessary, however, to refer at the outset to certain particular factors relating to the evidence.

Particular factors relating to the evidence

Mr Ludlow’s plea of guilty

[17] Mr Ludlow had pleaded guilty to count one. That was a charge under s 220 of the Crimes Act 1961 (the Act). National Finance had advanced $125,000 in breach of the trust deed related party restrictions to a related party, Universal Marketing 2003 Ltd. The advance was not on commercial terms, not recorded in writing, and not reported to Covenant. It was recorded in the National Finance’s accounts as a “dealer loan”. The money was used to purchase car accessories in Asia for sale in New Zealand by Ms Braithwaite’s company. The summary of facts in relation to this count recorded that Mr Ludlow was aware of the related party requirements, and aware that he had control over National Finance’s assets on terms that required him to comply with those requirements. So Mr Ludlow had accepted guilt, based on these facts.

Mr Gray’s evidence

[18] Mr Ludlow did not give evidence. The Crown had called Mr Gray and Mr Ludlow had cross-examined him extensively, challenging his truthfulness. The Judge did not accept that he was untruthful. She said of Mr Gray’s evidence:[4]

Can I still believe what he says? I am of the view that I can, not only because in this trial I am of the view that he is a witness of the truth but his account of the facts is supported by so much of the contemporaneous evidence from others and also contemporaneous documentation.

[19] Before he gave evidence in Mr Ludlow’s trial, Mr Gray had already been charged and pleaded guilty to crimes relating to the same matters and had been sentenced, as the Judge observed.[5]

Mr Ludlow’s statement admitting cover-up

[20] The Crown also placed weight on a statement that Mr Ludlow had signed dated 23 August 2012, which was prepared to support Mr Banbrook in his sentencing. The Crown described it as a “brutally frank mea culpa”. It stated:

I am signing this statement with respect to an issue that has been drawn to my attention by Mr Tony Banbrook. That is the issue of whether or not I concealed (together with John Gray) our offending from Mr Banbrook with respect to the misuse of National Finance 2000 Limited investor funds.

I confirm that I did so. When I was sentenced in the High Court by Justice Toogood, he correctly observed that I had covered up the fraudulent use of investor funds. I confirm that I did this and concealed the true position, not only from the investors, trustee and auditors, but also from Mr Banbrook. This included related party loans made to myself, and my previous partner, Carol Braithwaite, and our associated companies.

Plea of guilty to other charges

[21] Finally, it is necessary to record that Mr Ludlow pleaded guilty to charges laid by the Financial Markets Authority (FMA) relating to conduct during the same period as applies to the counts that are the subject of this appeal. Having pleaded guilty on 13 December 2011, he was sentenced on 26 January 2012.[6] There was considerable overlap in the relevant facts. However, there is a distinct difference between the Serious Fraud Office (SFO) and the FMA prosecutions. The SFO prosecution focussed on criminality in using public funds, because of knowing contravention of the terms of the debenture trust deed. The FMA prosecution was based on the making of false representations to the public as to induce investment. The criminality of the FMA charges was directed at the statements made and published by Mr Ludlow that led to the funds being obtained from the public; that of the SFO prosecution, on the other hand, focussed on the use to which Mr Ludlow put the funds once they had been raised from the public.[7]

Observations

[22] Some general observations can be made about these matters.
[23] First, Mr Ludlow’s admission of count one demonstrated that he had control over company property, had that control in circumstances that required him to deal with the property in accordance with the trust deed, knew of those circumstances in general terms, and intentionally dealt with property otherwise than in accordance with those requirements.
[24] Secondly, the Judge specifically rejected Mr Ludlow’s efforts to blame the breaches of the related party’s requirements of the trust deeds on Mr Gray. She found Mr Gray a credible witness, and it is our view, having considered his evidence, that there was a proper basis for her to do so. The history of the company, the statements in the prospectus and the record of the specific transactions, all showed Mr Ludlow to be the leader of the company, and in charge of its day to day operations.
[25] Thirdly, on any overview Mr Ludlow’s claim that it was not he but Mr Gray who was responsible for the breaches lacked credibility. Mr Ludlow and his family were the parties that received financial gain from the related transactions, not Mr Gray. Mr Ludlow was in control of the companies, and he and his family or associates were the directors and the shareholders. We are satisfied that Mr Ludlow was in charge.
[26] Further, his explicit statement of knowledge in support of Mr Banbrook of the deliberate concealment of the true position from the trustee and others cannot be ignored. Mr Ludlow filed an affidavit in which he sought to expand on why he had made this statement. Although the affidavit runs for eight pages, there is nothing in it that indicates the statement he made in support of Mr Banbrook was not made intentionally and was not true. In his oral submissions to us, Mr Ludlow mentioned that he had been under great pressure when he signed that statement. However, there is nothing in his affidavit and nothing before us that indicates we should not give weight to the plain words. The statement acknowledged fraudulent use of investor funds (including related party loans), and his concealment of the true position from the investors, the trustee, the auditor and Mr Banbrook. This acknowledgement is directly consistent with Judge Bouchier’s conclusion that he acted knowingly and to benefit himself, while concealing his position from others. It is inconsistent with Mr Ludlow’s submission to us that he was innocent, and a victim of Mr Gray’s actions.
[27] Finally, his admission of the FMA charges involves the implicit acknowledgement that all related party transactions were not on normal commercial terms, and there were on occasions inadequate security for the dealer loans. This casts yet further doubt on Mr Ludlow’s insistence before us that he was not involved in the deliberate making of advances in breach of the requirements of the trust deeds and with knowledge of their terms.
[28] In summary, in our view there are a number of factors which on an objective overview indicate Mr Ludlow’s guilt and undermine his claims of innocence.

Reasons for verdict

[29] Mr Ludlow submitted the Judge erred by providing insufficient reasons for her verdict in relation to each count. He cited R v Connell,[8] R v Eide[9] and Wenzel v R[10] in support of that submission, and compared the extensive reasons for judgment provided by Wylie J in R v Douglas with those in his case.
[30] In particular, he criticised Judge Bouchier’s findings concerning the second element of s 220, namely that Mr Ludlow had control of property in circumstances that required him to deal with that property in accordance with the requirements of the trust deeds. The Judge held:[11]

I clearly find, and I am sure that as a matter of law that the circumstances here required any person, that is Mr Ludlow, to account or act in accordance with any requirements, so the specific requirements of counts 2 and 3 which are referred to in 3.10 of the Crown closing and for counts 4 and 5 referred to in 3.11 of the Crown closing. For count 6 it is the GSA requirements which are mentioned in 3.12 of the Crown closing and I find that this is not in dispute.

[31] We agree that at times the Judge’s reasons are very compressed and unduly conclusory. It was an error to refer to part of Crown closing in a way which incorporated those submissions into the reasoning of the decision. The reasoning in a judgment should be able to stand alone.
[32] Nevertheless, the reasons while on occasions brief, accurately referred to the key facts and law and explained why the Judge reached her decision on each count. While careful consideration is an elementary need, long exposition is not required.[12] There has not been a failure to identify and make findings on key factual elements, or on critical credibility issues as occurred in Wenzel v R. The Judge correctly identified key elements relating to each count and applied them to the facts. We are satisfied that this ground of appeal cannot succeed.

The individual counts

Section 220 elements

[33] Given the plea of guilty on count one, (a charge under s 220 of the Act), the counts at issue were five counts (counts two to six) of theft under s 220, and one count (count seven) of false accounting under s 260.
[34] In Tallentire v R, this Court quoted with approval this summary of the elements of s 220 from the judgment of Wylie J in the High Court:[13]

(a) Did the accused have control over property?

(b) Was the property in the control of the accused, in circumstances that required him to deal with the property, or any proceeds arising from the property, in accordance with the requirements of any other person?

(c) Did the accused know of those circumstances? And,

(d) Did the accused intentionally deal with the property, or any proceeds of the property, otherwise than in accordance with those requirements?

[35] Judge Bouchier summarised the elements of theft by a person in a special relationship under s 220.[14] That summary was, in general terms, in accordance with the elements approved in Tallentire.

Count two

[36] This charge related to a cheque of $222,500 that was used to buy properties in Fiji for Mr Ludlow’s personal interest, in breach of the related party provisions in the trust deeds. The cheque was written out and signed by Mr Ludlow, and was issued by National Finance. The money was used to pay down the deposit for four villas at the Fiji Beach Resort and Spa at Denarau in Fiji. The Judge was sure that Mr Ludlow was responsible for the transaction and concealed it from the trustee and the auditor.[15] She did not accept that Mr Ludlow did not know of Mr Gray’s actions in accounting for the money.
[37] We consider that these conclusions by the Judge were entirely open to her on the evidence, and seem to us to be correct. The available evidence on this count was strong.

Count three

[38] As a result of Mr Ludlow agreeing to purchase a property at 2 Bishop Lenihan Place, East Tamaki for $2,395,000, there were a series of advances to Cabtal Properties amounting to $511,966.44 by 31 March 2006. Mr Ludlow was sole director and shareholder of this company. The advances were categorised as “dealer loans” and were undocumented, interest free and security free. The Judge found that these advances were concealed as dealer loans and not categorised as related party lending, in breach of the trust deed.[16] She rejected the claim by Mr Ludlow that this was the fault of Mr Gray. We consider that she was correct to do so, and to find that Mr Ludlow authorised the advance knowing it to be in breach of the trust deed.

Counts four and five

[39] Count four related to the period between 1 January 2004 and 31 December 2004, when the total amount of related party lending engaged in by National Finance amounted to $1,738,681. That figure represented the equivalent of 7.5 per cent of National Finance’s total tangible assets. Count five concerned the period 1 January 2005 to 31 December 2005, when related party lending amounted to $813,893, $275,915 in excess of the two per cent threshold. The money was lent to Payless Cars companies, Universal Marketing and Great North Management, as well as for the Fiji apartments. There was disclosure of the lending to the trustee, but they were not in the director’s quarterly reports. The Judge found that Mr Ludlow was aware of the breach.[17] There was ample evidential material to support that finding.

Count six

[40] This count related to intentional dealing with property in breach of the debenture trust deed and subordinate note trust deed in that Mr Ludlow did not obtain security for a number of floor plan facility advances. The unsecured advances amounted to $1,300,875.02. The trust deed, by an amended provision, allowed National Finance to grant a floor plan facility to a related party, but only where that facility was secured by a general security agreement over all the assets of that related party. The principal amount owing by the related party could not exceed set percentages of the retail value and total cost of motor vehicles owned by that related party. Mr Ludlow made the advances without putting in place a general security agreement.
[41] The SFO alleged that Mr Ludlow was aware of the further lending and the requirement for the general security agreement, and knowingly failed to comply.
[42] The Judge found that Mr Ludlow was aware of the requirements of the trust deed and the need for a general security agreement and that this was a requirement.[18] He had the responsibility for signing such agreements. There is nothing to suggest that she was wrong in so finding.

Count seven

[43] This is a charge under s 260 of the Act for omitting a material particular from a document used for accounting purposes with intent to deceive. The omission was of related party lending, being an advance to assist related parties to buy property in Fiji. These were in fact villas for Mr Ludlow’s personal use. The Judge found that Mr Ludlow knowingly wrote the cheque for the Fiji villas.[19] He knew that the advance was concealed as part of what the Judge described as an “elaborate fiction” constructed by Mr Ludlow and Mr Gray.[20] Mr Ludlow was the person primarily responsible for this. Again, we agree with the Judge and consider that the findings she made were in line with the evidence.
[44] Mr Ludlow submitted that the Judge erred in her statement of what the Crown was to prove under this count. Early in her judgment, the Judge had stated that the document from which Mr Ludlow omitted a material particular, namely the advance to purchase the Fiji apartments, was National’s financial statements for 31 March 2003.[21] Mr Ludlow submits that he could not have omitted anything concerning the Fiji apartments from those financial statements, as the purchase of the apartments did not occur until 30 August 2004.
[45] However, in her later consideration of Mr Ludlow’s liability under the false accounting charge, the Judge referred to the document in question as National’s financial statements for 31 March 2005, not 2003.[22] That is the document that is referred to in the indictment. We are satisfied that the Judge’s earlier mention of the 2003 financial statements was an immaterial error, rectified within the judgment itself by its later correction.

Section 138 of the Companies Act 1993

[46] Mr Ludlow submitted that s 138 of the Companies Act 1993 provided him with a defence to the charges he faced. Section 138 states that a director may rely on reports, statements and financial data and other information prepared or supplied, and on professional or expert advice given by certain persons, if the director:

(a) acts in good faith; and

(b) makes proper inquiry where the need for inquiry is indicated by the circumstances; and

(c) has no knowledge that such reliance is unwarranted.

[47] We agree with the Crown that s 138 does not assist Mr Ludlow. The section exists to allow directors to rely on information provided to them by employees, professional advisers and experts, or other directors where that reliance is on reasonable grounds. It does not assist Mr Ludlow where he has been found to have had actual knowledge of the elements of the offence, as well as to have acted dishonestly.

Conclusion

[48] We are satisfied that the Judge correctly summarised the elements of the charges, examined the evidence in relation to each element, and correctly concluded that Mr Ludlow’s guilt was established on each count. The case against Mr Ludlow was strong. The appeal against conviction is dismissed.

The sentence appeal

[49] During the hearing it became apparent that the sentence appeal was best heard together with the sentence appeal of the FMA charges, which is still to be set down. Mr Ludlow and the Crown accepted that the appeal should not proceed on its own at this time.
[50] The sentence appeal is therefore adjourned for a date to be fixed to be heard with the appeal in the matter of Ludlow v R CA727/2012.[23]

Result

[51] The appeal against conviction is dismissed.
[52] The appeal against sentence is adjourned to be heard with the appeal in Ludlow v R CA727/2012.

Solicitors:
Crown Solicitor, Auckland for Respondent

[1] R v Ludlow DC Auckland CRI-2009-004-23758, 26 July 2011 [Conviction judgment].
[2] R v Ludlow DC Auckland CRI-2009-004-23758, 20 October 2011 [Sentencing notes].
[3] R v Douglas [2012] NZHC 1746.
[4] Conviction judgment, above n 1, at [22].
[5] At [21].
[6] R v Ludlow HC Auckland CRI-2008-004-20412, 26 January 2012.

[7] The distinction was discussed in a decision on an “autrefois convict” argument heard before Venning J: R v Ludlow HC Auckland CRI-2008-004-20412, 18 August 2011.
[8] R v Connell [1985] 2 NZLR 233 (CA).
[9] R v Eide (Note) [2005] 2 NZLR 504 (CA).
[10] Wenzel v R [2010] NZCA 501.
[11] Conviction judgment, above n 1, at [30].
[12] Wenzel v R at [39].
[13] Tallentire v R [2012] NZCA 610, [2013] 1 NZLR 548 at [51].
[14] Conviction judgment, above n 1, at [12].
[15] At [32].
[16] At [33]–[34].
[17] At [33]–[36].
[18] At [38].
[19] At [40]–[41].
[20] At [40]–[41].
[21] At [13].
[22] At [41].
[23] Ludlow v R CA186/2012, 13 February 2013.