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R v Bettle [2013] NZHC 1455 (17 June 2013)

Last Updated: 26 December 2014

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2010-004-10228 [2013] NZHC 1455

THE QUEEN

v

RICHARD GILBERT BETTLE VANCE ERIC ARKINSTALL

JUDGMENT OF KATZ J [Section 347 application]

This judgment was delivered by me on 17 June 2013at 4:15pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

B H Dickey, Meredith Connell, Auckland

D Breaden, Breaden McCardle Chubb, Paraparaumu

Copy to:

P W Forsyth, Auckland

T J Castle, Barrister, Wellington

S Mount, Barrister, Auckland

R v BETTLE & ARKINSTALL [2013] NZHC 1455 [17 June 2013]

Introduction

[1] Mr Vance Arkinstall and Mr Richard Bettle were independent directors of two sister finance companies, Dominion Finance Group Limited (“Dominion”) and North South Finance Limited (“North South”). Both companies are now in receivership and in liquidation.

[2] Messrs Arkinstall and Bettle (“A” and “B” respectively) are scheduled to appear for trial on 1 July 2013 on seven charges brought by the Financial Markets Authority (“FMA”) under ss 58(1) and 58(3) of the Securities Act 1978 (“Act”). The indictment alleges that during 2007 and 2008 certain Dominion and North South offer documents contained untrue statements regarding related party transactions, internal risk management procedures and liquidity issues.

[3] In particular, it is alleged that A and B signed registered prospectuses that omitted material particulars of related party transactions. A and B say, however ,that they had no knowledge of those related party transactions, because they were concealed from them by other directors and senior executives. Further, they say that the Crown is bound to accept in these proceedings that they did not know about the transactions. That is because, in separate proceedings relating to Dominion and North South (brought by the Serious Fraud Office (“SFO”) against other directors

and senior executives)¹ the Crown called A and B as witnesses to testify that they

had no knowledge of the related party transactions.

[4] A and B submitted that if they did not know about the related party transactions, then they will have an “absolute” defence to the charges brought against them. If so, this prosecution cannot succeed. Further, even if they do not have an absolute defence to the current charges, they submitted that it would still be an abuse of process to proceed to trial against them, given the way in which the Crown conducted its case in the SFO proceedings.

[5] A and B therefore apply to be discharged on the FMA charges pursuant to either s 347 of the Crimes Act 1961 or, in the alternative, under the inherent

¹ R v Whale & Ors [2013] NZHC 731 (Lang J).

jurisdiction of the Court. They say it would be an abuse of process for the Crown to proceed to trial against them.

[6] The Crown opposes A and B’s application for discharge and submits that it is misconceived and without merit. The Crown submits that absence of knowledge of the related party transactions would not give rise to an absolute defence. A and B must show that their belief in the truth of the relevant statements in the offer documents was “reasonable” in all the circumstances that existed at the time. Further, the Crown submitted that there is no basis at all for any finding of abuse of process in this case.

A and B’s application for discharge

[7] A and B both gave evidence for the Crown in the SFO proceedings. Amongst other things, their evidence was that throughout the relevant period, they had no knowledge of certain related party transactions entered into by Dominion and North South, with the exception of a loan known as the WAFD loan (which was disclosed to directors in April 2008).²

[8] A and B’s application for discharge summarises their position (in part) as

follows:

[2.3] ...For the narrow purposes of s 347 no Judge, properly directing him/herself could reasonably convict on the evidence available when the Crown contentions are, and the evidence is, as a matter of fact, that at the time the alleged offences against the Securities Act are said by the Crown to have been committed by A and B, they had no knowledge at all of the existence of related party transactions the subject of the indictment (and essential to proof of guilt under the Securities Act).

....

[2.7] By reason of the Crown’s contentions in the recently concluded SFO trial, the Crown cannot properly put A and/or B on trial pursuant to the FMA indictment within. More particularly the Crown cannot in justice put A or B before the Court on an alleged strict liability offence and cast upon them, as part of the burden resting on them to establish the reasonableness of their belief in the accuracy of public “offer” documents which they signed or which were issued, an obligation to prove facts which the Crown itself has

² For ease of reference, I will use the phrase “related party transactions” to mean “related party

transactions, with the exception of the WAFD loan.”

contended are true, reliable and valid. On the Crown’s own earlier case neither A nor B could possibly have known that the subject loan transactions, actively concealed or withheld from them, were related party loans for the purpose of the provisions of the Securities Act upon which the Crown case herein relies.

[9] A and B submitted that, in effect, they would have “absolute” defences under ss 58(2) and/or 58(4) of the Act if the Crown (and the Court) was bound to accept, in these proceedings, that A and B had no knowledge of the related party transactions referred to in the indictment.

[10] Further, even if a lack of knowledge would not give rise to an “absolute” defence, A and B submitted that it would nevertheless be an abuse of process to require them “as part of the burden resting on them to establish the reasonableness of their belief in the accuracy of public “offer” documents...to prove facts which the Crown itself has contended are true, reliable and valid”.

[11] A and B’s final submission was that, if their arguments regarding related party transactions are accepted, then each of the counts against them should be struck out in their entirety, because the other particulars relied on by the Crown (relating to liquidity and risk mitigation procedures) are inextricably linked with the related party transaction issues. Accordingly those particulars are “tainted” and the entire indictment is flawed. Accordingly, A and B should be discharged on all counts.

Issues

[12] I will consider the following issues in turn:

(a) If A and B did not know of the related party transactions can they still be convicted under ss58(1) or 58(3)? In other words, will lack of knowledge of the allegedly untrue statements give rise to an absolute defence?

(b) Would it be an abuse of process to require A and B to prove their reasonable belief in the truth of the statements regarding related party

transactions in the offer documents in this case, given the way in which the Crown advanced its case in the SFO proceedings?

(c) If the answer to (b) is yes, are the allegedly untrue statements regarding liquidity and risk mitigation procedures particulars so inextricably linked with the related party transaction issues that it would be an abuse of process to proceed to trial in relation to those particulars?

Issue 1: Is knowledge that the statements set out in the indictment were untrue essential to a conviction under s 58?

[13] I will discuss in the next section of this judgment (in relation to “Issue 2”) whether, in effect, an “issue estoppel” arises in relation to A and B’s knowledge of the related party transactions, due to the way in which the Crown conducted the SFO proceedings.

[14] For present purposes, however, I will simply assume that A and B had no knowledge of the related party transactions. Would a total lack of knowledge of such transaction give rise to an “absolute defence” under ss 58(2) and 58(4) of the Act?

Relevant law

[15] Section 58 of the Act states:

58 Criminal liability for misstatement in advertisement or registered prospectus

(1) Subject to subsection (2), where an advertisement that includes any untrue statement is distributed,-

(a) the issuer of the securities referred to in the advertisement, if an individual; or

(b) if the issuer of the securities is a body, every director thereof at the time the advertisement is distributed –

commits an offence.

(2) No person shall be convicted of an offence under subsection (1) if the person proves either that the statement was immaterial that he or she had reasonable grounds to believe, and did, up to the time of the distribution of the advertisement, believe that the statement was true.

(3) Subject to subsection (4), where a registered prospectus that includes an untrue statement is distributed, every registered prospectus was signed for the purposes of s 41 (l)(b), commits an offence.

(4) No person shall be convicted of an offence under subsection (3) if the person proves either that the statement was immaterial that he or she had reasonable grounds to believe, and did, up to the time of the distribution of the prospectus, believe that the statement was true ...

[16] The meaning of an “untrue statement” for the purposes of s 58 is set out in s 55 as follows:

55 Interpretation of provisions relating to advertisements, prospectuses, and registered prospectuses

For the purposes of this Act,-

(a) A statement included in an advertisement or registered prospectus is

deemed to be untrue if-

(i) It is misleading in the form and context in which it is included; or

(ii) It is misleading by reason of the omission of a particular which is material to the statement in the form and context in which it is included:

[17] In summary, ss 58(1) and 58(3) of the Act are offences of strict liability, which the Crown is required to prove beyond reasonable doubt. An offence will be committed where the Crown proves beyond reasonable doubt that:

(a) an advertisement or registered prospectus contained an untrue statement³ (either a misleading affirmative statement or the omission of a particular which is material to statements made in the document and which renders statements made in the document misleading);

(b) that the advertisement or registered prospectus was distributed; and

(c) in respect of a registered prospectus, that it was signed by the accused or on their behalf; or in respect of an advertisement, that the accused were directors at the time of distribution of the relevant advertisement.

³ This includes statements which are untrue at the time of initial distribution of the document, and statements which become untrue while the document is distributed to the public: R v Steigrad [2011] NZCA 304 at [116].

If the Crown establishes these three elements, then the accused will be prima facie liable.

[18] Sections 58(2) and 58(4) provide defences to these otherwise strict liability offences. In particular, a defence will be available where the accused can prove on the balance of probabilities either that:

(a) the statement or omission was immaterial; or

(b) the accused believed the statement was true and he or she had reasonable grounds for that belief.

A and B’s submissions

[19] The most common ground for seeking a discharge under s 347 of the Crimes Act is that, on the Crown case, there is insufficient evidence on which the Judge or jury (the trier of fact) could properly convict.⁴ However, A and B did not advance their argument on that basis. They did not dispute (for present purposes) that there is sufficient evidence available to the Crown to proceed to trial on the essential elements that the Crown must prove, as set out at [17] above.

[20] Rather, the focus of the discharge application was on A and B’s statutory defences under ss 58(2) and 58(4), in respect of which there is no evidence before the Court. A and B submitted, in essence, that the Crown is bound by the evidence in the SFO case (that A and B had no knowledge of the related party transactions) and that, given that evidence, their affirmative defences must inevitably succeed.

[21] In particular, it was submitted (on the related party transactions issue) that “a Judge/jury (decider of fact), properly directed, could not convict where the charges are not available as a matter of fact because the relevant transactions were (as contended by the Crown and found by Lang J in the SFO case) concealed from A and B throughout the relevant time periods, and as a result they lacked the requisite

_{actual knowledge of the relevant loans under ss 58(2) and (4)”.}

⁴ As articulated in R v Flyger [2001] 2 NZLR 721 (CA).

[22] The Crown accepted in the SFO case that A and B did not know about the related party transactions. A and B submitted that this is fatal to this FMA prosecution because “[k]nowledge is essential to a conviction under s 58 of the Securities Act 1978”. If A and B have an absolute defence they should be discharged under s 347, rather than casting the burden on them of having to establish their defence at trial.

The Crown’s arguments

[23] The Crown noted that the SFO and FMA cases concern different legal issues and therefore have a significantly different focus. The Crown did not dispute, however, that A and B were not aware of the related party transactions. That was the evidence at the SFO trial and the Crown is not currently proposing to adduce contrary evidence in the FMA case. However, the Crown did not accept that it was in any way bound by the evidence in the SFO case (see further at [41] – [44] below).

[24] The Crown submitted, however, that even if it were assumed that A and B had no knowledge of the related party transactions, that would not be determinative of any count in the indictment. The offences are patently of strict liability and do not require proof of knowledge that the relevant statements were untrue. Once the Crown has proved the essential elements set out at [17] above the onus will be on A and B to prove, on the balance of probabilities, that they had reasonable grounds to believe, and did believe, that the offer documents were true. It will be for A and B to establish at trial that their belief in the truth of the relevant statements was reasonable in all the circumstances. That is not an issue that can or should be determined at this pre-trial stage.

Discussion

[25] There are two limbs to the statutory defences available under ss 58(2) and

58(4). Firstly, that the directors believed that the relevant statements were true. Secondly, that they had reasonable grounds for that belief. This aspect of A and B’s argument appears to conflate the two. It assumes that if a person does not know the facts which would cause a statement in an offer document to be untrue, then their belief in the truth of the offer document must be reasonable.

[26] However, an “absolute” defence will not arise simply because the directors believed the relevant statements in the offer documents to be true. They must also prove that they had reasonable grounds for such a belief. The recent Court of Appeal decision in Jeffries & Ors v R⁵ (the Lombard case) illustrates the point. In that case the Court of Appeal accepted that the appellant directors believed the statements in the amended prospectus were true, despite the omission of certain material facts. The Court observed, however, that:⁶

Given the appellants’ own knowledge of the critical state of Lombard’s liquidity, neither reliance on the views of the company’s executives nor the advice of professionals could avail the appellants. It was open to the Judge to conclude they could not have had reasonable grounds to believe that their expressions of confidence in the company’s liquidity were true without reference to the omitted matters which demonstrated clearly the vulnerable state the company was in. Nor could they have reasonably relied on the advice and assurances of management in the circumstances. That is because of the non-delegable nature of the duty imposed by s 58 and because the ultimate responsibility to govern and manage the company is theirs.

(Citations omitted)

[27] The Court concluded that there was a substantial evidential foundation for the

Judge to find that the appellants did not have reasonable grounds for their belief. ⁷

[28] In considering any issues of “reasonableness” under ss 58(2) and 58(4) in this case it is likely that a wide range of issues will need to be considered. These may include things such as general market conditions; the liquidity position of both companies; the information provided to directors by management (and the directors’ scrutiny of such information); any inquiries the directors made prior to signing the relevant documents; the overall degree of care, diligence and skill exercised by the directors; any divisions of responsibility between executive and non-executive directors; the systems put in place by the board in relation to risk management; any expert advice received and so on. The inquiry will necessarily be fact specific and it is impossible to predict at this pre-trial stage (particularly in the absence of any

_{defence evidence) what factors may ultimately prove to be of particular relevance.}

⁵ _{Jeffries & Ors v R [2013] NZCA 188.}

⁶ Jeffries & Ors v R [2013] NZCA 188 at [196]; see also the discussion by Heath J in R v Moses

_{HC Auckland CRI-2009-004-1388, 8 July 2011 at [74] – [87].}

⁷ At [198].

[29] Accordingly, even if (as A and B submitted) the Crown were bound to accept at trial that A and B did not know of the related party transactions and so believed the offer documents to be true, that would not be the end of the matter. A and B would still have to discharge the burden of proving, on the balance of probabilities, that their belief in the truth of the statements was reasonable in all the circumstances. It would be highly unusual to discharge an accused under s 347 of the Crimes Act in circumstances where the accused carries the burden of proof on the relevant issue.

[30] It follows that no “absolute” defence arises in relation to the related party transaction issues. Even if the Crown were bound by the evidence and findings in the earlier SFO case (which I discuss further at [45] – [51] below), it would still be necessary at trial to determine whether A and B’s belief in the truth of the relevant statements was reasonable, in all the circumstances of this case.

Issue 2: Would it be an abuse of process to require A and B to prove their reasonable belief in the truth of the statements in the offer documents, given the way in which the Crown advanced its case in the SFO proceedings?

[31] Counsel for A and B submitted that, whether or not lack of knowledge gave rise to an “absolute” defence, it would still be unjust to allow this case to proceed to trial. In particular, given the way the Crown (“in its SFO manifestation”) presented its case to the Court in R v Whale and the findings of Lang J in that case, A and B submitted that it would be an abuse of process for the Crown to now proceed with the FMA charges against them.

Discharge of accused on abuse of process grounds – the law

[32] In addition to the jurisdiction to discharge an accused pursuant to s 347, the Court retains an inherent jurisdiction to control its procedures and to prevent abuse of the Court's processes. This enables the Court to discharge an accused on the basis that continuation of the prosecution would be an abuse of process.

[33] In Moevao v Department of Labour the Court of Appeal comprehensively reviewed the previous authorities on abuse of process. Richardson J summarised the relevant principles as follows:⁸

The concern is with conduct on the part of a litigant in relation to the case which unchecked would strike at the public confidence in the Court’s processes and so diminish the Court’s ability to fulfil its function as a Court of law. As it was put by Frankfurter J in Sherman v United States 356 US

369, 380 (1958): “Public confidence in the fair and honourable administration of justice, upon which ultimately depends the rule of law, is

the transcending value at stake.”

The justification for staying a prosecution is that the Court is obliged to take that extreme step in order to protect its own processes from abuse.... It may intervene in this way if it concludes from the conduct of the prosecutor in relation to the prosecution that the Court processes are being employed for ulterior purposes or in such a way (for example, through multiple or successive proceedings) as to cause improper vexation and oppression. The yardstick is not simply fairness to the particular accused. It is not whether the initiation and continuation of the particular process seems in the circumstances to be unfair to him. That may be an important consideration. But the focus is on the misuse of the Court process by those responsible for law enforcement. It is whether the continuation of the prosecution is inconsistent with the recognised purposes of the administration of criminal justice and so constitutes an abuse of the process of the Court.

... it is only where to countenance the continuation of the prosecution would be contrary to the recognised purposes of the administration of criminal justice that a Court would ever be justified in intervening.

[34] Similarly, Richmond P in Moevao observed that:⁹

... it cannot be too much emphasised that the inherent power to stay a prosecution stems from the need of the Court to prevent its own process from being abused. Therefore any exercise of the power must be approached with caution. It must be quite clear that the case is truly one of abuse of process and not merely one involving elements of oppression, illegality or abuse of authority in some way which falls short of establishing that the process of the Court is itself being wrongly made use of.

[35] Subsequently, in Fox v Attorney-General the Court of Appeal summarised the relevant principles as follows:¹⁰

[37] These principles set a threshold test in relation to the nature of a prosecutor's conduct which warrants a decision to end a prosecution, prior to trial, as an abuse of process. Conduct amounting to abuse of process is not

⁸ _{Moevao v Department of Labour [1980] 1 NZLR 464 at 482.}

⁹ _{At 471 – 472.}

¹⁰ Fox v Attorney-General [2002] NZCA 158; [2002] 3 NZLR 62.

confined to that which will preclude a fair trial. Outside of that category it will, however, be of a kind that is so inconsistent with the purposes of criminal justice that for a Court to proceed with the prosecution on its merits would tarnish the Court's own integrity or offend the Court's sense of justice and propriety. The power of stay is not available for disciplinary purposes nor to reflect a Court's view that a prosecution should not have been brought. The hallmarks of official conduct that warrant a stay will often be bad faith or some improper motive for initiating or continuing to bring a prosecution but may also be simply a change of course by the prosecution having a prejudicial impact on an accused. Finally, to stay a prosecution, and thereby preclude the determination of the charge on its merits, is an extreme step which is to be taken only in the clearest of cases.

[36] Most recently, in Beckham v R the Court of Appeal again emphasised that a high level of misconduct is required before a case will be stayed and observed that a “high level of circumspection on the part of the Court is required before it should intervene.”¹¹

A and B’s submissions on abuse of process

[37] A and B submitted that “the Crown cannot in justice put A or B before the Court on an alleged strict liability offence and cast upon them, as part of the burden resting on them to establish the reasonableness of their belief in the accuracy of public “offer” documents which they signed or which were issued, an obligation to prove facts which the Crown itself has contended are true, reliable and valid”.

[38] Counsel for A and B drew an analogy with cases where there is unfairness due to the prosecution seeking to obtain a conviction on evidence clearly discredited or rejected in earlier proceedings. Counsel described the relevant principle as one of “unjust inconsistency” as between decisions of the same court. A and B relied in particular on R v Wilsoll¹² in which the Court of Appeal cited the following passage

from R v Roberts:¹³

... To exclude evidence on the ground of unfairness or abuse of process merely because when given on an earlier occasion an acquittal resulted when no more can be said than that it might not then have been accepted would be to exclude too broadly and on the basis of speculation. The position would be different if the earlier acquittal(s) was consistent only with rejection on the evidence or if the evidence constituted the essence of an

¹¹ _{Beckham v R [2012] NZCA 603; [2013] 1 NZLR 613 at [47].}

¹² _{R v Wilsoll [1997] 2 NZLR 161 (CA) at 167.}

¹³ R v Roberts (1992) 10 CRNZ 172 at 176-177.

ingredient of the offence. Fairness must be judged in individual cases ..

[emphasis added]

[39] A and B argued that “the principle must apply equally where an earlier conviction (of a different defendant) was secured in whole or in part by acceptance of obvious and uncontroversial evidence which was material to obtaining that conviction.” A and B argued that this principle applied in respect of “evidence relied upon and accepted in the SFO prosecution”.

[40] A and B submitted that these principles supported the argument that they should not be put on trial on issues which reopen, in any way, the evidence they gave in the SFO case, given the Crown reliance on their evidence in that case.

The Crown’s submissions

[41] The Crown submitted that A and B’s arguments were entirely misconceived. The Crown is not currently asserting anything in this case which is inconsistent with the approach taken in the SFO case.

[42] However, even if the Crown were to rely on evidence in this case which differed from that in the SFO case, no abuse of process would arise. The Crown is not required to prove that A and B had actual knowledge of the untrue statements. That is a matter for A and B to raise, in the context of a statutory defence, if they wish to do so. The SFO trial did not deal directly or indirectly with whether A and B could make out such defences under ss 58(2) or 58(4) of the Act.

[43] This is a different case, involving different charges and different accused. The evidence and findings of Lang J in the SFO case cannot be directly imported into this case. This case must be determined on the evidence heard before this Court and the findings of this Court, not the evidence before and findings of another court.

[44] The Crown submitted that the current situation is routine. For example in the Bridgecorp, Capital & Merchant and National Finance cases certain executives or senior directors were convicted of fraud charges and had, to a greater or lesser extent, misled their fellow directors. These other non-fraudulent directors were

themselves convicted of s 58 charges. Similarly in this case, at least one of the other directors was also “misled” but has nevertheless pleaded guilty. No abuse of process arises in such circumstances.

Discussion - abuse of process

[45] Richardson J stated in Moevao that the focus of the “abuse of process” ground for discharging an accused is that there has been a “misuse of the Court process by those responsible for law enforcement.” In particular, the Court must focus on whether “the continuation of the prosecution is inconsistent with the recognised purposes of the administration of criminal justice and so constitutes an abuse of the process of the Court.”

[46] It is clear from the authorities outlined at [33] to [36] above that a “high level” of misconduct is required. The behaviour must be serious enough to justify the “extreme” step of the Court intervening to protect its own processes. As Richmond P observed in Moevao, it must be quite clear that the case is truly one of abuse of process and not merely one involving elements of oppression, illegality or abuse of authority in some way which falls short of establishing that the process of the Court is itself being wrongly made use of.

[47] I accept the Crown’s submissions outlined at [41] to [44] above. I am unable to identify any conduct on the part of the Crown which is oppressive in even a minor way, let alone which constitutes prosecutorial misconduct on such a scale that it would warrant the intervention of the Court to prevent an abuse of its processes. No unfairness to A and B arises out of their involvement as witnesses in the SFO case, the evidence they gave, the Crown’s submissions in that case or Lang J’s findings.

[48] If evidence was to emerge in this case that differed from that in the SFO case it would not be due to any prosecutorial misconduct or other conduct on the part of the Crown amounting to abuse of process. It would simply reflect the practical realities of the trial process.

[49] Counsel for A and B’s reliance on the concept of “unjust inconsistency” between decisions of the same court, as articulated in R v Roberts (or more generally) does not advance matters. The present case does not involve the Crown bringing new charges against the same accused on the basis of evidence rejected at an earlier trial (resulting in an acquittal). Further, the evidence that A and B did not know of the related party offending was not an “essential element” of the Crimes Act charges against the accused in the SFO case, let alone an “essential element” of any charges previously brought against A and B.

[50] It would not be an abuse of process for this Court, in these proceedings, to consider afresh (in the context of different charges against different accused) the extent of their knowledge of the relevant transactions. Further, there is no basis at all on which it could be an abuse of process for this Court to consider, for the first time, the reasonableness of A and B’s belief in the truth of the statements set out in the indictment. That was simply not an issue in the SFO proceedings.

[51] In my view the facts of this case are far removed from those (very rare) cases in which the Court has found it necessary to take the “extreme” step of intervening to protect its own processes.

Issue 3: Are the alleged untrue statements regarding liquidity and risk mitigation procedures particulars inextricably linked with the related party transaction issues?

[52] Particulars regarding related party lending are included in six of the seven counts. Three counts include particulars alleging untrue statements regarding Dominion’s risk mitigation procedures. Particulars alleging untrue statements in relation to what could broadly be described as liquidity issues are included in all seven counts. For example, a number of particulars allege that Dominion’s financial position as set out in the registered prospectus and accompanying financial statements was untrue, due to the omission of information as to the deterioration in Dominion’s financial position.

[53] Ultimately it will be sufficient for the Crown to prove that one of the statements set out in the particulars is untrue, in order to establish a prima facie case on that particular count.¹⁴ Given this difficulty, counsel for A and B submitted that:

(a) it would be an abuse of process to continue to trial on those particulars relating to related party transactions; and

(b) that the risk mitigation and liquidity issues were so interlinked with the related party issues that those particulars are also “tainted”. Accordingly, the only appropriate recourse would be to strike out the indictment as a whole as an abuse of process.

[54] The Crown submitted that to the extent there was potentially a degree of overlap between the related party and liquidity issues, that did not benefit the accused. Rather, the Crown submitted, the known concerns about liquidity should have put the accused on inquiry, which should in turn have identified the related party lending and also that risk mitigation procedures were not being adhered to.

[55] I have already found that it would not be an abuse of process for the Crown to proceed to trial on the particulars regarding the related party transactions. It is therefore not necessary for me to address the “tainting” argument in any detail. However, I note for completeness that even if the particulars regarding related party issues were objectionable for the reasons submitted by A and B, that would not in my view “taint” the other particulars. Each particular is essentially “stand alone” in nature and will need to be considered on its merits at trial.

Proposed amendments to indictment

[56] Finally, I note that a final ground of challenge to the indictment was that some of the particulars referred to related party loans which did not occur until after the dates specified in the relevant count. The Crown accepted this criticism, at least in part, and has indicated that it will seek leave to file an amended indictment

_{removing references to some of the related party loans from several of the counts.}

¹⁴ R v Baxter [1998] 3 NZLR 144 (CA).

Conclusion

[57] For the reasons I have outlined above, I have concluded that:

(a) Lack of knowledge of the related party transactions does not give rise, on its own, to an absolute defence. In order to establish a statutory defence A and B will need to prove, on the balance of probabilities, that their belief in the truth of the statements in the relevant documents was reasonable in all the circumstances.

(b) No abuse of process issues arise. The facts of this case are far removed from those (very rare) cases in which the Court has found it necessary to take the “extreme” step of intervening to protect its own processes.

(c) Even if (contrary to my findings) the particulars regarding related party issues were objectionable for the reasons submitted by A and B, that would not “taint” the other particulars, which relate to risk mitigation and liquidity issues. Each particular is essentially “stand alone” in nature and will need to be considered on its merits at trial.

Result

_{[58] The application for discharge is dismissed.}

Katz J