THE QUEEN v BRIAN MAXWELL CONSTABLE [1999] NZCA 85 (13 May 1999)

IN THE COURT OF APPEAL OF NEW ZEALAND

ca 44/99

THE QUEEN

V

BRIAN MAXWELL CONSTABLE

Hearing:	10 May 1999
Coram:	Tipping J Doogue J Robertson J
Appearances:	G W Calver for Appellant M J Thomas for Crown
Judgment:	13 May 1999

judgment of the court delivered by ROBERTSON J

[1] Brian Maxwell Constable stood trial in the High Court at Auckland in February 1999 charged that :

Between 23 July 1995 and 25 March 1996 at Auckland, being a person adjudged bankrupt and before his discharge from bankruptcy failed without reasonable cause to comply with the provisions of section 62 of the Insolvency Act 1967, by directly or indirectly taking part in the management of a company, namely, Hudson Bay Refrigeration Ltd without the leave of the Official Assignee or the High Court.

[2] At the trial it was admitted that the appellant had been adjudicated bankrupt on 25 March 1993 and discharged on 25 March 1996;that Hudson Bay Refrigeration was incorporated on 9 August 1996 and until it went into liquidation on 8 February 1996 the appellant at least indirectly had taken part in the management of the company;that he had neither applied for nor obtained leave of either the Official Assignee or the High Court to do this.

[3] The sole issue at trial was whether his failure was without reasonable cause.

[4] Mr Constable did not give evidence but relied on evidence given by Kevin John Gilligan, a semi retired Accountant who was called by the Crown and who was the Accountant/Financial Adviser to the appellant at relevant times.

[5] Mr Constable was convicted by the jury after a retirement of just 30 minutes.The crux of the appeal was summarised in written submissions thus :

On the basis of Mr Gilligan's evidence counsel put to the jury that the Crown had not established beyond reasonable doubt that the appellant had no reasonable cause for acting as manager.Counsel argued that the appellant had taken advice as to the setting up of a structure which would not be in contravention of his obligations as a bankrupt.On the basis of Mr Gilligan's evidence, counsel argued, the appellant was entitled to conclude that if he took that advice, he would not be in breach of his obligations.Mr Gilligan, who claimed to have at least a working knowledge of insolvency legislation, admitted that had he thought that the appellant was acting unlawfully he would have told him so.One reasonable inference available to the jury was that the appellant was acting on advice from Mr Gilligan and he would have been led to believe, on the basis of Mr Gilligan's silence on the point, that the proposed company structure and his role in it was lawful.It was on this basis that a defence was put to the jury that the Crown had not proved beyond reasonable doubt that the appellant had no reasonable cause for failing to comply with the provisions of section 62.

[6] The Crown takes issue with that summation and argues particularly that :

[a] The appellant had specifically requested the setting up of a company. Mr Gilligan said - "Brian asked me for a company to be set up, asked me to set up a company."

[b] Mr Gilligan said that his involvement was merely to "establish the company and give Brian the money that had been advanced into a trust account by Mercer and from time to time answering questions that he had asked Mercers."

[c] Mr Gilligan was not a specialist in insolvency law although he said that he had a good working knowledge and was aware that Mr Constable had been adjudicated bankrupt.

[d] Mr Gilligan advised that the appellant could not be a director or shareholder but that he could be an employee but that he did not discuss what he could do and could not do having regard to the fact that he was a bankrupt and noted, "Brian knew what he wanted and came along for those things."

[e] Mr Gilligan further said that he would have expressed an opinion as to what he thought the parameters of legality were and were not.He noted that if he had had a concern that the appellant was acting illegally in what was proposed he would not have hesitated to tell him.He said that his knowledge was chiefly tax knowledge and he did not present himself as an expert on the Companies Act nor on the matter of the Insolvency Act.

[7] The learned trial Judge in his summing up to the jury had said :

What is not a reasonable cause, and I direct you on this as a matter of law, is ignorance as to the prohibition against managing a company without leave when you are a bankrupt.Ignorance of the law is no excuse.This can be distinguished from a person who is given wrong advice about the law.If someone were told "thus and thus and thus is the situation" and that advice is wrong, then there may be a reasonable excuse on the part of someone who bona fide follows that advice.That's different from simply being ignorant of what the legal position is.That's mistaking what the law says about a certain matter. ... It is not entirely clear, you may think, what the defence position is in the matter on the question of this essential ingredient which is in dispute,Mr Calver acknowledged, correctly as a matter of law, that ignorance of the law is no excuse.It would not avail a person charged with this offence to say "I simply had no idea that an undischarged bankrupt was not allowed to manage a company."The law would say "ignorance of the law is no excuse.You did actually manage the company" in that hypothetical case.We have no direct evidence from the accused that he received advice to the effect that what he was actually doing was within the law.As I understand Mr Calver's essential submission, you ought to consider whether the Crown has satisfied you beyond reasonable doubt that he may not have been acting under a misapprehension as to the advice he received in relation to the activities that he was carrying on.Although ignorance of the law is not an excuse, ignorance of fact may be.A person who is not aware that such person's activities do amount to managing might be suffering from ignorance or mistake of fact.... If you know you are managing, ignorance of the law prohibiting it will not be an excuse.But if you don't know that what you are doing amounts to management then that may be a reasonable cause.

[8] The learned Judge returned to this theme in his summation of counsels' arguments and said :

Mr Calver submitted that on the evidence there was advice from Mr Gilligan in relation to the company formation but no advice warning him not to be involved in the management of the company that was set up.This raises the distinction which you have to bear in mind between not being told something and being told something wrong that you act on.If you are not told something you may be left in ignorance which is no excuse.If you are given wrong advice by a professional person and bona fide act on it then you may have a reasonable excuse.It is for you to determine where, if anywhere, that evidence takes you bearing in mind that you must not guess or speculate.In the end, said Mr Calver, the trial revolves around the word "reasonable".Reasonable in relation to doubt, beyond which the Crown must prove its case;reasonable in relation to cause, the absence of which the Crown must prove.

[9] We received prior to the hearing extensive and erudite submissions on the difference between ignorance of law which is covered by s 25 of the Crimes Act and mistake.

[10] Mr Calver submitted that the essential issue for the Court was whether the words "without reasonable cause" in s 62 of the Insolvency Act 1967 should be read as meaning any cause which a jury thinks reasonable other than ignorance of the prohibition itself.

[11] It became apparent during the course of dialogue and argument that the issue was a very confined point, namely, whether in the peculiar circumstances of this case the Judge had effectively excluded the jury considering the possibility that advice had been given by Mr Gilligan to the appellant in the silence or absence of comment on management when the Judge effectively told the jury there had to be articulated erroneous advice.

[12] Ms Thomas responsibly accepted that the sentence in the summing up "if you are not told something you may be left in ignorance which is no excuse" was a mis-statement of the law, if in particular circumstances there was an inevitable conclusion (albeit by inference) that upon the basis of the actual advice given, silence on another issue was sufficient to give a person in the position of Mr Constable, reasonable cause (or at least to be sufficient to raise a doubt as to whether the Crown had negated that as a reasonable possibility) for his failure.

[13] Having found that there was such misdirection, the issue is whether there was a miscarriage of justice?Within the context of this case the Court must be sure that but for the misdirection the jury would inevitably have reached the same verdict.

[14] We are not able to reach that high point and the appeal must be allowed.

[15] The appellant set himself a high evidential threshold in challenging the proof of his being without reasonable cause without giving evidence.But his failure to give evidence (as the Judge rightly told the jury) was not proof in and of itself.

[16] Mr J D McLaren who was at a relevant time the Business Development Manager of Streat Electrical had had involvement with the appellant when he was an Engineer for a company called Thermotech.When discussing the possibility that Mr Constable would become involved directly in an arrangement with Mercers over the Auckland Casino he agreed that the appellant was concerned about how he could structure his involvement in the Sky City job because he was a bankrupt.

[17] Mr K J Gilligan who had dealings with Mr Constable since approximately 1987, gave the critical evidence.He said he was asked if he would assist in getting a company started in respect of the commercial connection with Mercer Stainless Steel at the Sky Tower Casino.The appellant had asked Mr Gilligan if he would apply for the name of the company and once he got the name he was asked to put the shares in the name of the appellant's son and that the son would be the director.Mr Gilligan said in evidence in chief :

Did you know that Mr Constable was a bankrupt at this time?Yes I did.

Did you have discussions with him about that?We discussed that, yes we did.

What did you say?Well I won't remember it verbatim but ...

In general?I explained to Brian that he could not be a director of the company which he understood.Equally as far as the shareholding is concerned he could not hold the shares, and he understood that.

And what about the management of the company?I didn't discuss the management of the company with Brian.I had no reason to.I didn't really give that much thought.

Did you know as a bankrupt whether he could be involved in the management or not?I knew as a bankrupt he could not be an officer of the company or hold shares in the company.

And is that the extent of your discussions with him?With regard the company yes.

What was Mr Constable's involvement in the company to be?An employee.

Why an employee?Because he is denied being able to be an officer of the company or a shareholder of the company because he's a bankrupt.

And to your knowledge was he aware of this?Yes he was aware of this. . I believe yeah.

[18] In cross-examination he said :

Now you yourself arranged for the name approval application?Yes.

And you attended to the actual incorporation of the company, no solicitors were involved?Yes.

Sorry that's a result of my question your answer was ambiguous - were any solicitors involved?No

Now you were aware that Mr Constable had been the person negotiating the Sky City contract for whatever entity got the contract?Yes.

He was the person who had the refrigeration engineering experience so he was obviously going to be the pivotal person in the company to carry out the contract?Yes.

And from your general knowledge as an accountant presumably involved in construction contracts and so on you are aware that he would be involved in the day to day administration of the contract?Yes.

You were aware that the company was to be set up, in fact is it correct that you really were pivotal in suggesting that a company be set up to look after the contract?Brian asked for a company to be set up, asked me to set up a company.

Was that in the context of how his involvement in the contract could be arranged so as not to be unlawful?

BENCH - pause.That's inviting the witness to express an opinion.

COUNSEL - Were there discussions directly about his bankruptcy in the context of his possible involvement in the Sky City contract?In other words, was his bankruptcy going to be relevant to his having an involvement?Brian understood that he could not be ...

BENCH - no - you cannot express an opinion as to what he understood.You can pass a comment on what he said.

WITNESS - I can't comment on what Brian said because I can't remember what Brian said.

COUNSEL - Did you discuss what he could do and couldn't do having regard to the fact that he was a bankrupt?No we did not discuss it.Brian knew what he wanted and he came along for those things.

You expressed an opinion did you not as to what you thought the parameters of legality were and were not?Yes.Yes I would have, yes.

At the end of your discussions with Mr Constable the vehicle chosen by Mr Constable to have the involvement in the sub contract was a company?Yes.

You advised Mr Constable that he couldn't be a director of that company? Yes.

Was he a director of that company?No.

You made it plain to him that he could not be a shareholder of that company? Yes.

Was he a shareholder of that company?No.

You made it plain to him that he could be an employee of a company?I understood that he could be an employee of that company.

Did you further understand that he in fact was an employee of the company? Yes.

[19] Finally Mr Calver said to this witness :

In a nutshell, had you had a concern that Mr Constable being acting illegally in what was proposed you wouldn't have hesitated to tell him "Brian I don't think you should be doing this" would you?That's true.

[20] Out of all this emerges the simple issue whether the jury could be satisfied that as a result of the advice he had received, Mr Constable had no reasonable cause to believe that so long as he was an employee and not a director or a shareholder he was not breaching the provisions of the Insolvency Act which controlled his activities.The Judge effectively said that could not be so if there had not been articulated advice.That is accepted to be a mis-statement.Advice can in some circumstances arise other than by way of an articulated comment.In the factual pattern of this case there was a close and continuing contact between Mr Gilligan and the appellant.Each knew what had to be achieved.There needed to be a company vehicle created in which the involvement of Mr Constable was not a breach of the Act.

[21] We are certainly not satisfied that on the available evidence the jury would have necessarily reached a conclusion favourable to the appellant.But equally we cannot be sure that if the jury had been told that they had to be satisfied that in all the circumstances Mr Constable had no reasonable cause for failing to comply with the provisions of the Act because of what he had been told by Mr Gilligan including silence on the issue of management as opposed to employment it would have convicted.A person may be an employee of a company without breaching the Act providing they are not involved with management.The jury was directed that if there was no articulated advice on the issue then there was nothing further for them to consider.We do not accept that necessarily to be the position.The jury needed to consider whether on the totality of all that occurred it was satisfied that the Crown had proved that Mr Constable had no reasonable cause for his failure to comply.

[22] Although one would often anticipate that direct and unequivocal questions must be asked, in the circumstances of this case (bearing in mind the nature of the relationship and the focus upon what each was doing) we are not satisfied that it can be concluded that Mr Constable could not have received advice from the silence in the totality of what occurred.This is not a case about his being ignorant about the law's requirements.This is a case of whether there was a mistake or error made about what the law meant and upon which Mr Gilligan was providing advice.

[23] The appellant's defence at trial was that as a result of inferences there was a reasonable possibility that he had received erroneous advice from Mr Gilligan, and as was the position in The Maintenance Officer v Stark [1977] 1 NZLR 78, this was a mistake about a matter of civil law.

[24] Ms Thomas constructed a sustained argument that on the totality of the evidence Mr Constable was not in fact relying upon Mr Gilligan in any event and that it was his own ignorance which was crucial.That could be the position but we are not satisfied that it is necessarily so.We are forced back to the reality that the Judge because of the expressions he used, effectively took from the jury the consideration of the narrow and intriguing point which the defence were raising in this case.

[25] Mr Constable was sentenced to 4 months periodic detention.Since then he has re-established himself in another part of New Zealand having been discharged from his bankruptcy.An issue arises as to whether in all the circumstances there should be a retrial.The Crown has applied for a retrial. Considering the penalty imposed we may well have determined that it was not appropriate but for the fact that this is not the first time that this man has been declared bankrupt.In those circumstances we have concluded that it is appropriate to grant a retrial.It is a matter for the discretion of the prosecuting authority as to whether they offer any evidence at a further trial but because of the history of the matter we are of the view that the application should be granted.

[26] The appeal is accordingly allowed.The matter is remitted to the High Court at Auckland for a re-hearing.

Solicitors

Gresson Grayson & Calver, Hastings

Crown Law Office, Wellington