THE QUEEN v BRIAN MAXWELL CONSTABLE [1999] NZCA 290 (7 December 1999)

IN THE court of appeal of new zealand

ca359/99

THE QUEEN

V

BRIAN MAXWELL CONSTABLE

Hearing:	2 December 1999 (at Auckland)
Coram:	Blanchard J Cartwright J Panckhurst J
Appearances:	Appellant in person K Raftery for Crown
Judgment:	7 December 1999

judgment of the court delivered by blanchard j

[1] Mr Constable appeals his conviction at a retrial in the High Court at Auckland on a charge under s128A of the Insolvency Act 1967 of taking part in the management of a company, namely Hudson Bay Refrigeration Ltd, without leave of the Official Assignee or the High Court contrary to s62 of that Act.He was convicted at an earlier trial but that conviction was overturned on appeal to this Court.

Facts

[2] Mr Constable was adjudicated bankrupt on 25 March 1993.His bankruptcy ceased by discharge after three years on 25 March 1996.The period covered by the charge is 23 July 1995 to 25 March 1996.

[3] The appellant is a qualified refrigeration engineer.In July 1995 he was employed by a company called ThermoTech Auckland Ltd as a project manager.In that capacity he submitted a quotation to Mercer Stainless Ltd for the installation of refrigeration units and cool rooms in the Sky City Casino which was at that time under construction.Subsequently Mercer Stainless Ltd made inquiry of the appellant about whether he could come up with a proposal to enable the contract to be given to him without involving ThermoTech and the appellant proposed to Mercer Stainless that he should incorporate a company for this purpose.Mercer Stainless was agreeable and agreed to advance funds to facilitate this arrangement.Hudson Bay Refrigeration Ltd was accordingly incorporated on 9 August 1995.The appellant's son was the only director.The appellant was not a shareholder.

[4] All the negotiations regarding tenders and contracts and all ongoing managerial communications were handled for Hudson Bay by the appellant.The majority of correspondence on behalf of Hudson Bay was signed by the appellant under the title "Manager (Technical Projects)".Because of the concession shortly to be mentioned there was comparatively little focus at trial on the extent to which Mr Constable's activities went further.

[5] On 8 February 1996 Hudson Bay went into liquidation.

The legislation

[6] Section 62(1)(a) of the Insolvency Act provides

62. Prohibition of bankrupt entering business-

(1) Except with the leave of the Assignee or the Court, no person who is adjudged bankrupt after the commencement of this Act shall before his or her discharge-

(a) Enter into or carry on any business either alone or in partnership with any person...or directly or indirectly take part in the management of any company:

[7] The charge against the appellant was brought under s128A(1)(b) of the Insolvency Act which was enacted by the Insolvency Amendment Act 1993 and came into force on 1 July 1994.It reads:

128A. Offences by undischarged bankrupts in relation to management of companies-

(1) Every person who is adjudged bankrupt and who-

...

(b) Fails without reasonable cause to comply with section 62 of this Act,- commits an offence and is liable on conviction on indictment to imprisonment for a term not exceeding 2 years or on summary conviction to imprisonment for a term not exceeding 6 months or to a fine not exceeding $1,000.

The trial and the appeal

[8] At the trial there were formal admissions from Mr Constable that (1) he was an undischarged bankrupt at the relevant time; (2) he did not have the leave of the Official Assignee or of the High Court to directly or indirectly take part in the management of Hudson Bay; and (3) he indirectly took part in the management of Hudson Bay.

[9] The only essential ingredient which, following the making of the formal admissions, the Crown was then left to prove beyond reasonable doubt at trial was that Mr Constable's indirectly taking part in the management of Hudson Bay, and therefore his failure to comply with s62, had occurred "without reasonable cause" in terms of s128A(1)(b).

[10] At trial an important witness for the Crown was Mr K J Gilligan, a chartered accountant.He had given Mr Constable some assistance in the setting up of Hudson Bay and some advice in relation to its affairs and Mr Constable's position as an undischarged bankrupt.Mr Constable's defence was that he had reasonable cause to play an indirect part in the management of the company because he did so in reliance upon the advice of Mr Gilligan.However, as was his right, Mr Constable elected not to give evidence in his own defence.

[11] Two appeal grounds were argued by Mr Constable.The first was that he could not be prosecuted under s128A(1) because it does not apply to someone who had already been adjudicated bankrupt before the 1993 Amendment Act commenced. The second was that the Judge had misdirected the jury in a comment which he made about Mr Constable's employment role at ThermoTech.

Applicability of s128A(1)

[12] The question of the applicability of s128A, whose opening words read "Every person who is adjudged bankrupt", had been the subject of a ruling adverse to Mr Constable by Paterson J before the first trial.That Judge said that s62 applies to a person who is adjudged bankrupt after the commencement of the Act, namely after 1 January 1971.He accepted that the acts which constituted a breach of s128A must obviously occur after the commencement of that section, but said that the elements of the offence were made out if the accused was adjudged bankrupt after 1 January 1971 and directly or indirectly took part in the management of any company after 1 July 1994 without the stipulated consent.

[13] The Judge rejected a submission that to apply the Act in this way would amount to retrospective legislation.He referred to a statement in Bennion, Statutory Interpretation, 2 ed, p216 that an application of a provision is not retrospective where the enactment is applied at a time after its commencement to a state of affairs subsisting at that time even though the state of affairs came into existence before the commencement.A statute is retrospective, the Judge said, if it makes something an offence which was not an offence when it was committed.The bankruptcy of Mr Constable was not an element of the offence but, rather, a qualifying condition which had to exist before the offence could be committed."It is the status of the alleged offender at the time and that status or qualifying condition is not in itself an element of the offence."

[14] While the section did not use the words "has been adjudged bankrupt" nor "being bankrupt" nor "who was adjudged bankrupt either before or after the coming into force of this section", the words actually used, on what the Judge thought to be the correct interpretation of the effect of ss62 and 128A and the retrospective principles which he had referred to, did not in his view "make the section prospective."Paterson J saw no unfairness in the interpretation he gave to the section."The law came into effect on 1 July 1994 and the essential acts upon which the allegations are based occurred after that date."

[15] There was no appeal from this pre-trial ruling and when the matter came to this Court for the first time counsel then appearing for Mr Constable did not refer to it.On a pre-trial application before the second trial Salmon J considered the same arguments from Mr Constable but concluded that Paterson J had been right.

[16] In his submissions to us Mr Constable said that the key words "who is adjudged bankrupt" were naturally to be read as referring only to adjudications occurring after the commencement of the section and that, as s128A is a penal provision, those words should not be given a strained or extended meaning.He contrasted s62 itself, in which the equivalent phrase is qualified by an express reference to the commencement date of the Act (in 1971), arguing that the contrast shows that s128A was not intended to have what he characterised as a retrospective application.

[17] Anticipating an argument from the Crown, Mr Constable said that there would be no gap in the legislation for bankrupts in his position because s20 of the Acts Interpretation Act 1924 (see the equivalent, s19 of the Interpretation Act 1999, in force from 1 November 1999 and now the applicable provision) had the effect of preserving s128(1)(a) in the form in which it stood prior to 1 July 1994, when it read:

128. Summary offences-

(1) Every person who is adjudged bankrupt commits an offence and is liable on summary conviction to imprisonment for a term not exceeding 3 months who-

(a) Fails without reasonable cause to do any of the things required of him by sections 33, 37, 60, and 61 of this Act or to comply with any of the provisions of sections 62, 111, and 117 of this Act;...

[18] Therefore, Mr Constable argued, that, although the reference to s62 was omitted by s3(1) of the 1993 Act, he, and those in a like position, could still have been prosecuted summarily under that provision, but would have faced a lesser maximum penalty.

[19] We are satisfied that Paterson J's ruling was correct.In 1993 all Parliament did was to increase the seriousness of the particular offending and to mark that by enabling prosecution upon indictment, as well as summarily, and increasing the maximum penalty.It certainly should not be taken to have intended to create a gap which would make impossible any prosecution of those undischarged bankrupts who had been adjudicated before 1 July 1994 but on or after that date took part in management without a requisite consent.Contrary to Mr Constable's view, s20 of the Acts Interpretation Act (and now s19 of the Interpretation Act) does not have the effect of enabling the old s128(1)(a) to be invoked in respect of offending which occurred after 1 July 1994.All that section does is to preserve the Crown's ability to bring a prosecution under s128(1)(a) (as it stood before amendment) after that date in respect of acts of participation in management done before that date.Section 20(h) states that "all offences committed, or penalties or forfeiture incurred, before such repeal... may be prosecuted, punished... as if such enactment had not been repealed...".So, if Mr Constable's construction of s128A(1) were correct, there would be a very significant gap in the offence provisions and, as we have said, that can never have been Parliament's intention.

[20] Nevertheless, if the language used were not apt to cover those adjudicated before 1 July 1994, a gap would exist.We agree with Mr Constable that the words in a penal provision ought not to be strained artificially to fill a gap. But we find no need to do so.We say this for two reasons.First, s62 itself indicates a commencement point - the commencement of the Insolvency Act.The opening words of s128A(1) link to that provision.Secondly, although the wording could have been clearer, we have no difficulty in reading "who is adjudged bankrupt" as a statement of status or pre-condition.If on 1 July 1994 Mr Constable had been asked "What is your status? Are you adjudged bankrupt?", the only correct answer he could have given would have been in the affirmative."Every person who is adjudged bankrupt" means in this context every person who has the status of an undischarged bankrupt.

[21] There is of course no retrospective operation or effect when the section is read in this way for it applies only to acts of management, direct or indirect, done by a person with that status on or after 1 July 1994.

[22] This ground of appeal therefore fails.

Alleged misdirection

[23] In his summing up the trial Judge gave the jury an instruction concerning what was and what was not a "reasonable cause", pointing to a difference between ignorance of the legal position, which is no excuse, and ignorance of fact, which might be.He told the jury that if someone knows in fact that he is involved in the management of a company, ignorance of the law prohibiting that role will not be an excuse; but that if someone does not know that what they are doing amounts to management, then that may be a reasonable cause.

[24] Turning to the question of reliance by the person in question on legal advice and acting bona fide upon that advice, the Judge said that might constitute reasonable cause for failing to comply with the provisions of the Act.He also dealt with the possibility that the advisor's silence on an issue might have given rise to the belief that there was no prohibition in relation to the matter on which the advisor was silent.

[25] No objection is taken by the appellant to any of these directions to the jury.

[26] What was in issue on this appeal is a particular sentence which came when the Judge was summarising for the jury the argument put to them by Mr Constable in his closing address.Mr Constable had reminded the jury that he had been told by Mr Gilligan that he could not be a director or a shareholder but that he could be an employee.It had been Mr Constable's contention that he had done no more than act as an employee.In his previous position with ThermoTech he had been employed as a project manager, and it was accepted that in fulfilling that role he was not in breach of the prohibition on acting directly or indirectly in management.Mr Constable had submitted to the jury that the position that he occupied with Hudson Bay was no different to the position that he was in with ThermoTech.

[27] Commenting on this the Judge said:

Now, of course, you don't really know that because there is no evidence of what he actually did at ThermoTech and the important issue is not titles, but what is actually done by a person when it comes to management.

[28] Mr Constable said that there were two misdirections in this passage which dealt with what he described as the heart of his defence of reasonable cause. He said that it was wrong for the Judge to tell the jury that his title was not important, only his activity and that the Judge was also wrong to say that it was not known what he had done at ThermoTech because there was some evidence about that.

[29] We need not linger on this part of the judgment for in discussion with members of the Court Mr Constable accepted that in truth there was no misdirection.It is plain that what the trial Judge meant when he told the jury that there was "no evidence of what [Mr Constable] did at ThermoTech" was that there was no evidence of a job description.All the jury had heard or seen in exhibits was that Mr Constable had acted as a project manager for ThermoTech responsible for preparing tenders.He was an employee with that title but there was no evidence of what he did other than managing projects. This was plainly not management of ThermoTech itself, but the jury had not been given any basis upon which to compare Mr Constable's functions for ThermoTech and Hudson Bay and, in any event, there was a formal admission of indirect management of the latter.There could also be no justified complaint about Salmon J's comment in this context that the important issue was not titles but "what is actually done by a person when it comes to management."

"Reasonable Cause"

[30] The trial and this appeal were conducted on the basis that Mr Constable had a defence of "reasonable cause" in terms of s128A(1)(b) if the Crown could not negative his explanation.That was that he genuinely acted upon the advice of a professional advisor in relation to his involvement in the management of the company.The gist of the offence is failing without reasonable cause to comply with the obligation not to take part in the management of a company while a bankrupt.We think it distinctly arguable that the defence upon which the appellant relied at trial was one of mistaken belief: that he did not believe his involvement to constitute taking part in the activity of company management.If that is correct, the defence would appear to have been based upon an absence of mens rea, rather than an existence of reasonable cause.In the event we do not consider that the way in which the issue was left to the jury disadvantaged the appellant.Indeed, if anything, his defence was placed before the jury in a more advantageous fashion than may have been justified. We do not doubt that had the jury been called upon to decide whether Mr Constable entertained a genuine belief that he was not taking part in the management of a company, its verdict would inevitably have been the same.We refer to this matter because this decision should not be taken as authority for the proposition that a mistaken belief concerning participation in management constitutes reasonable cause in terms of s128A(1)(b).We leave that matter open.

Result

[31] The appeal is dismissed.Mr Constable is ordered to resume his sentence of periodic detention by reporting to the Periodic Detention Centre at Hastings at 9 am on Saturday 11 December 1999 and thereafter as directed.

Solicitors

Crown Solicitor, Auckland