R v Russell CA367/98 [1999] NZCA 360 (2 June 1999)

Last Updated: 14 January 2019

IN THE COURT OF APPEAL OF NEW ZEALAND CA 367/98


THE QUEEN


V


ANTHONY WHITWORTH RUSSELL


Hearing: 13 May 1999 (at Auckland)

Coram: Elias CJ Blanchard J Anderson J

Appearances: R A B Barnsdale and N Patterson for Appellant
C B Cato for Crown

Judgment: 2 June 1999

JUDGMENT OF THE COURT DELIVERED BY ANDERSON J

[1] On 6 May 1993 Chartwell Sports Limited, a company registered pursuant to the now repealed Companies Act 1955 (“the Act”), passed a special resolution that it be wound up voluntarily. The company appointed the appellant its liquidator pursuant to s 276 of the Act. Mr Ben Howard Moreland, a director of the company, made a declaration of solvency pursuant to s 274(1) of the Act, and the declaration and accompanying statement of the company’s assets and liabilities were filed in the Companies Office by the appellant. That act of filing and the appellant’s conduct in connection with the liquidation led to his being tried before a District Court Judge and jury on an indictment containing 21 counts of dishonesty. He was discharged pursuant to s 347 of the Crimes Act 1961 on many of these in the course of the month long trial, but was convicted on eight counts and was sentenced to eight
months periodic detention. He now appeals against conviction in respect of each count on which he was found guilty.

[2] The principal ground of appeal is that the verdict of the jury on each count was unreasonable or cannot be supported having regard to the evidence. In the course of argument, which focused on the issue of inferences, counsel for the appellant was critical of the trial Judge’s direction in this respect, but not to the point of characterising it as a wrong decision on a question of law which itself justified allowing the appeal. The Judge directed the jury in terms which included the following:-

You are entitled to draw inferences or draw conclusions from certain facts, providing that the inferences that you draw, that that inference is a logical and reasonable inference or conclusion. ... You are entitled to look at the facts that you find established and draw from those established facts such conclusions or inferences that you consider logical and reasonable.

[3] Although commonly the direction on inferences refers to “facts which you find proved” rather than “facts that you find established”, the direction given in the particular case was entirely adequate.

[4] Counsel for the appellant correctly identified the essential legal principles relevant to the appeal. He referred to R v Ramage [1985] 1 NZLR 392 at 393 where this Court recognised that a verdict will be unreasonable or unsupportable having regard to the evidence if the Court is of the opinion that a jury acting reasonably must have entertained a reasonable doubt as to guilt. The Court also pointed out that where the Crown case against an accused is circumstantial, a jury may infer guilt where that is the only rational conclusion on the facts proved. New Zealand law does not require proof beyond reasonable doubt of every fact which may be relevant to proof beyond reasonable doubt of each essential ingredient of an offence – R v Puttick (1985) 1 CRNZ 644 at 647, lines 7-10.

[5] There being no misdirection by the trial Judge and no difference between counsel as to the correct legal principles to be applied, the appeal resolves into a
question whether, after allowing the jury’s entitlement reasonably to resolve issues of credit, there was a sufficient evidential basis for the guilty verdicts.

[6] Count 1 alleged as follows:-

ANTHONY WHITWORTH RUSSELL on or about the 6th day of May 1993 at Hamilton with intent to defraud used a document capable of being used to obtain a benefit namely a declaration of solvency for Chartwell Sports Limited dated the 6th May 1993 for the purpose of obtaining for himself or another a benefit.

[7] Counts 2 and 3 alleged theft pursuant to s 227(ba) of the Crimes Act 1961 of goods supplied to the company by Leisure Corp Holdings Limited (Count 2) and Bern Sports 1995 Holdings Limited (Count 3). In respect of each of those counts the suppliers complained that goods in which their proprietorial interest had been reserved by contractual provisions in the nature of Romalpa clauses had been sold by the appellant in the course of the liquidation notwithstanding their assertion of right.

[8] Counts 17-21 inclusive alleged offences contrary to s 229A of the Crimes Act 1961 in that on or about certain specified dates the appellant, with intent to defraud, had used a document capable of being used to obtain a pecuniary advantage, namely a GST return for specified periods, for the purpose of obtaining for himself or another a pecuniary advantage. The Crown case on these counts was that the appellant had fraudulently caused GST refunds to be made to the company in order to generate funds which he could apply, and did apply, towards the costs of his services as liquidator.

[9] The theme of the Crown case in respect of all the counts was that the appellant had contrived to become liquidator in order to milk the company for fees and that he dishonestly pursued and achieved that purpose. Of central importance at trial and on this appeal was whether the appellant’s acts involved fraudulent intent.

[10] A consideration of the first count requires an understanding of the distinction drawn by the Companies Act 1955 between a members’ voluntary winding up and a creditors’ voluntary winding up. Section 268 of the Act prescribes the circumstances in which a company may be wound up voluntarily. This may occur at the expiration
of a time fixed for the duration of a company or the occurrence of a specified contingency. A company may also be wound up if it resolves by special resolution that it be wound up voluntarily or resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business and that it is advisable to wind up. Section 274(1), (2) and (4) provide:-

274. Statutory declaration of solvency in case of proposal to wind up voluntarily – (1) Where it is proposed to wind up a company voluntarily, the directors of the company or, in the case of the company having more than 2 directors, the majority of the directors may, at a meeting of the directors, make a statutory declaration to the effect that they have made a full inquiry into the affairs of the company, and that, having so done, they have formed the opinion that the company will be able to pay its debts in full within such period not exceeding 12 months from the commencement of the winding up as may be specified in the declaration.

(2) A declaration made as aforesaid shall have no effect for the purposes of this Act unless –

(a) It is made within the 30 days immediately preceding the date of the passing of the resolution for winding up the company and is delivered to the Registrar for registration before that date; and

(b) It embodies a statement of the company’s assets and liabilities as at the latest practicable date before the making of the declaration.

(4) A winding up in the case of which a declaration has been made and delivered in accordance with this section or section 226 of the Companies Act 1933 is in this Act referred to as a members’ voluntary winding up, and a winding up in the case of which a declaration has not been made and delivered as aforesaid is in this Act referred to as a creditors’ voluntary winding up.

[11] In the case of a members’ winding up the company in general meeting shall appoint one or more liquidators – s 276(1). But in the case of a creditors’ voluntary winding up both the company and the creditors at statutory meetings of each may nominate a person to be liquidator and if the creditors and the company nominate different persons the person nominated by the creditors shall be liquidator – s 285.

[12] In the present case the Crown alleged that the appellant filed the declaration made by Mr Ben Moreland for the purposes of s 274(1) knowing that the company
would not be able to pay its debts in full within 12 months from the date of the declaration and therefore knowing that the declaration was wrong. The Crown alleged that the appellant was actuated by fraud in filing the declaration and that he did so for the purpose of obtaining a benefit for himself and/or for the company Jojac Holdings Limited, or the division of it known as HBM Consultants, which he effectively controlled. The alleged benefit was the office and advantages of liquidator of the company. The Crown argument was that the appellant knew that he would not or might not become liquidator if it should fall to creditors to make the nomination.

[13] As the length of the trial indicates, a good deal of evidence was traversed in the District Court. Ultimately the inference of fraudulent intent propounded by the Crown in respect of Count 1 related to:-

[a] The extent and nature of discussions between Mr Ben Moreland and the appellant at a meeting in April 1993 when the possibility of receivership and/or liquidation was discussed, and a meeting between them early in May 1993 when it was decided to undertake a voluntary liquidation.

[b] The relative commercial naivety of Mr Moreland and the accountancy expertise of the appellant.

[c] The manifest improbability in the perception of an accountant that the s 274(2)(b) statement of assets and liabilities could support the s 274(1) declaration.

[d] The exploitation of the company by the appellant in the course of the liquidation which produced funds to pay the liquidator but nothing at all for the benefit of creditors.

[14] As to sub-paragraph (a) above, the jury had the advantage of seeing both Mr Ben Moreland and the appellant being extensively and skilfully examined and cross-examined. The effect of Mr Ben Moreland’s evidence is that he knew little about the intricacies of company liquidation, that the appellant knew more than he
was prepared to concede, and that Mr Ben Moreland was guided by the appellant in what he should do. In some significant respects, such as, for example, the preparation of the statement of assets and liabilities, there was a conflict between the two. Resolution of that conflict was a classic jury function. The same considerations apply to sub-paragraph (b) above.

[15] As to sub-paragraph (c) above, it is necessary to consider aspects of the statement of assets and liabilities prepared for the purpose of s 274(2)(b). That statement set out current liabilities, including of course trade creditors and significant other creditors, and share capital and reserves indicating total liabilities of $207,305. The value of current assets was shown as $222,497, indicating a surplus of assets over liabilities in the sum of $15,192. The two most significant assets were stock on hand shown at $115,576, and fixed assets which, less an allowance for depreciation, were shown as having a value of $102,330. The major item of fixed assets was fixtures and fittings shown at cost, $90,600 less 10%. The net figure is not shown but it may be readily calculated at $81,540.

[16] If the statement reasonably indicated the true state of the company in the context of a winding up, the ability of the company to pay its debts in full within 12 months was exceedingly marginal. It depended to all intents and purposes on virtually full realisation of the value of stock on hand, plant and equipment and fixtures and fittings. Mr Ben Moreland testified that the appellant informed him to the effect that the declaration would be in order if secured creditors could be satisfied. The appellant denied this. But if the jury found, as it was entitled to do, that Mr Ben Moreland’s evidence was correct, the implication of manipulation by the appellant would be strengthened. This is because it must have been obvious to an accountant that it would be extraordinary if fixtures and fittings in a leased commercial property should be recoverable at cost less 10% in the context of a liquidation brought about through inability to trade profitably. Similar considerations apply, of course, to the realisable value of stock. No-one with an understanding of commerce could reasonably think that stock which could not be sold profitably in unforced circumstances would realise full ticket value in the exigent circumstances of the liquidation. Indeed at the commencement of the liquidation sale of stock in the first week of June 1993 it was offered by the appellant
at 20% discount. The application of such a discount to the stock value shown on the balance sheet accompanying Mr Moreland’s declaration would have demonstrated insolvency. The jury was entitled to impute to the appellant sufficient commercial acumen to be aware of the realities of the company’s position, just as they were entitled to reject his attempts in evidence to exonerate himself at the expense of Mr Moreland.

[17] As to sub-paragraph (d) above, the jury was entitled to take into account the way in which the liquidation was actually conducted. It has been mentioned that the only funds produced went the way of the liquidator. At least two of the trade creditors asserted to the appellant that they had reservation of title provisions in their contracts, but he paid no need and sold off the goods early on in the liquidation. The fact that the appellant continued to render alleged liquidators’ services and charge significant fees for them when there were no tangible assets left to realise could be taken as a further indication of dishonest exploitation.

[18] The counts of theft which raised the issue of Romalpa type reservations of title were supported by evidence from senior personnel of the complainant companies who saw their own stock on the company’s premises within a day or so of the resolution to wind up. Mr K Davidson, the Managing Director of Leisure Corp, the complainant on Count 2, and Mr D Bern, a director of Bern Sports, the complainant on Count 3, testified to a meeting with the appellant and adduced evidence of correspondence between their solicitors and the appellant. The tenor of their evidence, as the Crown wished the jury to find, was that they made the strength of their claim to title clear to the appellant but he overrode them roughshod. Again the jury would have had for its consideration the whole way in which the appellant was conducting himself in connection with the company. His explanation to the effect that he was protecting the assets of the company for the benefit of all creditors fell to be judged in the light of, for example, the benefit to himself as liquidator compared with the negligible return to creditors.

[19] The five counts relating to the alleged GST fraud are to be examined in the light of the following facts. Both the company and another company, Jojac, owned by a relative but managed by the appellant, were GST registered on an invoice basis.
This meant that GST was accountable in respect of invoices sent and recoverable in respect of invoices received. At the times alleged in the counts the appellant by way of Jojac rendered invoices to the company in respect of liquidators’ costs. Because of the company’s negligible trading in the course of the liquidation, invoices rendered by it were of limited value. The excess value of invoices received by the company entitled it to a GST credit which was paid. If Jojac correctly accounted to the Commissioner of Inland Revenue on the basis of the invoices it had rendered to the company, the GST credit to the company would have been recovered by the Commissioner from Jojac on its invoice. However the appellant caused Jojac to write off all or part of the debts created by its invoices to the company and did so in the same GST period that the invoices had been rendered. The net result of the write-offs was returned, resulting in a consequential reduction of the apparent liability of Jojac in respect of its own GST accounts. The Crown case was that the appellant deliberately and dishonestly inflated the fees said to be due and invoiced them with the intention of writing them off wholly or partly in order to obtain effectively eight-ninths of the benefit of the GST credit to be paid to the company. Mr Moreland’s evidence was that the appellant informed him that fees would be charged at $100 per hour. On that basis the time sheets, if truthful, would justify less than half the fees actually charged. The appellant had an explanation relating to higher and sometimes variable rates. But once again the issue was one of credit, not in a fiscal sense but in terms of believability.

[20] In furtherance of the appeal Mr Barnsdale assiduously examined the evidence, seeking to demonstrate that in respect of each count fraudulent intent was not the only rational inference that might be drawn from the facts. Ultimately he showed only an alternative explanation founded on the appellant’s own testimony, or consistent with it if viewed from a particular perspective. In that latter respect, for example, he pointed to the legality of the company’s filing GST returns which reflected the invoices the company had received from Jojac. Another example, relevant to Count 1, would be the effect on a balance sheet of the company assets represented by the shareholders’ overdrawn accounts. Such matters, however, had to be considered in the light of the whole of the evidence.
[21] Regard must be had to the jury’s entitlement reasonably to resolve issues of credibility and to consider the whole of the evidence relevant to a particular count rather than any isolated features. Many schemes may be lawful in one particular or even in all particulars taken separately, but may nevertheless be fraudulent in nature and intent when viewed as a unity. Whether such fraud exists requires the scheme itself to be identified. In this case the appellant’s conduct in relation to the GST, for example, is reasonably capable of being so identified as a scheme fraudulently devised and implemented. Indeed, when all of the relevant evidence is taken into account, the jury’s conclusion of deliberate fraud seems not only justified but inevitable.

[22] In the result we have not been persuaded that the jury could not reasonably make the evidential findings or take the inferences on which the logic of the case for the Crown depended.

[23] A second ground of appeal was that a miscarriage of justice occurred because the appellant was suffering from a medical disability which may have adversely affected the quality and reception of his evidence. For example, in the course of cross-examination, at a time when counsel for the Crown was questioning incisively, the appellant became unwell. The Crown then waived further cross-examination, in light of which the trial proceeded. In our view the trial Judge was punctiliously fair in his response to the appellant’s health, both in his direction to the jury and his granting of adjournments. We are not in the least persuaded that there was any unfairness to the appellant.

[24] For the above reasons the appeal is dismissed. The sentences of periodic detention will now take effect and the appellant is to report to the Periodic Detention Centre, 220 Tristram Street, Hamilton at 9 a.m. on Saturday the 5th day of June 1999 accordingly.


Solicitors

Michael Hunwick, Hamilton, for Appellant Meredith Connell, Auckland, for Crown