The Queen v Steigrad [2011] NZCA 304; (2011) 10 NZCLC 264,862; [2011] NZCCLR 24 (5 July 2011)

Last Updated: 13 July 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA226/2011 [2011] NZCA 304

BETWEEN THE QUEEN Appellant

AND PETER DAVID STEIGRAD Respondent

Hearing: 19 May 2011

Court: Glazebrook, Ellen France and Gendall JJ

Counsel: M S R Palmer, G H Allan and R A Kirkness for Appellant B P Keene QC and J F Anderson for Respondent

Judgment: 5 July 2011 at 11.00 am

JUDGMENT OF THE COURT

A The appeal is allowed.
B The indictment is properly framed.

100. The publication restriction relating to the High Court judgment is set aside.

4. There is no publication restriction in relation to this Court’s judgment.
   

REASONS OF THE COURT
(Given by Glazebrook J)

Table of Contents

Para No.

Introduction [1]
Factual background [6]
The indictment [12]
Venning J’s judgment [17]
The legislation [22]
The issue redefined [40]
Words of the section [43]
Statutory context [62]
Section 59 [67]
Purpose of the SAct [74]
Legislative history [79]
The 1977 Bill [80]
Statutes Revision Committee changes [86]
Securities Commission consideration [91]
The 1982 Act [93]
The 1994 Act [99]
The 1996 Act [100]
The 2002 Act [105]
Issues with the Crown’s interpretation [110]
Conclusion [116]
Extension certificates [117]
Result [118]

Introduction

[1] Mr Steigrad is one of five defendants charged with 18 counts of offending under the Securities Act 1978 (the SAct), the Crimes Act 1961, and the Companies Act 1993. The charges arise out of their directorship of Bridgecorp Ltd (Bridgecorp) and Bridgecorp Investments Ltd (BIL).
[2] In the High Court, Mr Steigrad applied for orders amending the particulars of a number of counts in the indictment and also for discharge under s 347 of the Crimes Act (or the inherent jurisdiction of the Court). His discharge application only related to four of the counts laid under s 58 of the SAct.[1]
[3] Mr Steigrad submitted that:

(a) Section 58 of the SAct does not, and was not intended to, create criminal liability where statements made were accurate when the prospectus and investment statement were first distributed but may have become untrue because of an intervening change in circumstances. That situation is covered by s 59 of the SAct.

(b) As presently framed, the counts overcharge a number of particulars and are an abuse of process.

[4] Venning J accepted Mr Steigrad’s submissions in a judgment of 25 March 2011.[2] On 7 April 2011 Venning J reserved the following question of law for determination by this Court:[3]

(a) What is the meaning and effect of:

(i) the requirement for liability under s 58(1) of the Securities Act 1978 that an advertisement be “distributed”; and of

(ii) the requirement for liability under s 58(3) of that Act that a registered prospectus be “distributed”?

[5] Before turning to that question, we set out the factual background, discuss the indictment and Venning J’s judgment and give an overview of the SAct. We then redefine the issue between the parties before turning to s 58 itself.

Factual background[4]

[6] Bridgecorp was incorporated on 30 April 2001. It sourced money from the public and lent it out to finance property transactions. Bridgecorp issued secured debentures to members of the public who invested in its term investments and it also issued redeemable preference shares to BIL.
[7] To enable it to issue the debentures to the public, Bridgecorp lodged a prospectus dated 21 December 2006 with the Registrar of Companies. The Crown case is that the prospectus and the investment statement summarising its contents contained a number of untrue statements at the time of its issue and that other statements became untrue at a later date.
[8] As at the date of its receivership on 2 July 2007, Bridgecorp had approximately $459 million of secured debenture stock outstanding to approximately 14,500 debenture holders. It is estimated that the secured debenture holders will recover less than ten cents in the dollar on principal invested.
[9] BIL was incorporated on 26 April 2002. It issued capital notes to the general public and invested the proceeds in redeemable preference shares issued by Bridgecorp. BIL’s performance was dependent on Bridgecorp.
[10] BIL also lodged a prospectus dated 21 December 2006 with the Registrar of Companies. The Crown says the prospectus and its accompanying investment statement contained a number of untrue statements identical or similar to those contained in the Bridgecorp prospectus and investment statements.
[11] At the date of its liquidation on 6 July 2007 BIL had approximately $28.8 million of capital notes outstanding to the public and 30 million redeemable preference shares outstanding in Bridgecorp. It is unlikely BIL’s capital note holders will recover anything.

The indictment

[12] The issue between the parties as to the interpretation of s 58 can be illustrated by reference to counts 9 and 10 of the indictment. Count 9 alleges that between 21 December 2006 and 7 February 2007 a prospectus containing untrue statements was distributed. Mr Steigrad and his co-accused signed or had signed on their behalf that prospectus. In count 9 the five alleged untrue statements are set out as follows:

(a) That Bridgecorp Limited (“Bridgecorp”) would/did not provide credit or advance loans other than in accordance with good commercial practice and internal credit approval policies.

(b) That Barcroft Holdings Limited was not a related party.

(c) That Bridgecorp’s financial position was as set out in the registered prospectus, which omitted a material particular, namely the deterioration in Bridgecorp’s financial position from the reported financial position for year end 30 June 2006.

(d) That in the period 30 June 2006 to 21 December 2006 no circumstance had arisen that would adversely affect the trading or profitability of the Charging Group; or the value of its assets; or the ability of the Charging Group to pay its liabilities due within the next 12 months.

(e) As to “Liquidity risk”:

(i) that Bridgecorp managed “Liquidity risk” by maintaining a minimum cash reserve on bank deposit; and

(ii) the omission of a material particular being the actual deterioration in Bridgecorp’s liquidity since year-end 30 June 2006.

[13] Count 10 is on similar terms but covers the period between 7 February 2007 and 30 March 2007. It includes the five particulars set out above[5] and adds a further particular.[6] The further untrue statement alleged is:

(f) That Bridgecorp had never missed an interest payment or, when due, a repayment of principal.

[14] It is accepted for present purposes that, as at the date the prospectus was delivered to the Registrar and registered on or about 21 December 2006, Bridgecorp had not missed an interest payment or repayment of principal. It first defaulted on or about 7 February 2007.
[15] Mr Steigrad’s position is that, because the relevant particular (f) of count 10 was correct when the prospectus was registered (first distributed) on 21 December 2006, there is no offence under s 58. Further, count 10 is duplicitous of count 9 in its repetition of the five particulars set out in count 9.
[16] The Crown case is that, because the prospectus was available to members of the public in a variety of ways and from a variety of sources between 7 February 2007 and 30 March 2007, it was continually “distributed” during that period. The untrue statements in that period included the new particular (f) of count 10. The Crown’s position therefore is that count 10 is properly framed.

Venning J’s judgment

[17] Venning J defined the issue as being whether the term “distribute” in s 58 is limited to the initial act of making the document available (first distribution) or includes continuous distribution (ie every time a member of the public obtains a copy of the document).[7] Venning J noted that the words “distribute”, “distributed” and “distribution” are used throughout the SAct in a number of sections.[8] While he accepted that in some sections the term is used consistently with continuous distribution, in others he considered the meaning clearly to be first distribution.[9] As illustrations of the latter interpretation, he referred to s 40 relating to an expert’s statement in a prospectus, and s 57 relating to an expert’s liability for misstatements.[10]
[18] In Venning J’s view, s 58 requires an actual positive act of distribution by the issuer or its director(s). The positive act could be the first distribution or any reissue, extension or other positive act that puts the documents (the registered prospectus or the advertisement) before the public.[11] Venning J held that the substantive offence under s 58 is complete on that occasion.[12] He considered this interpretation to be more consistent with the strict liability nature of the offence,[13] and with a number of other provisions of the SAct, including the definition of “untrue statement” in s 55 and “criminal liability for offering, distributing, or allotting in contravention of this Act” in s 59.[14] He further held that, to the extent any statement remained untrue and the advertisement or prospectus remained before the public, the offence was a continuing one.[15]
[19] Venning J was influenced strongly by the legislative history of s 58. As originally enacted, s 58 used the term “issued” rather than “distributed”, essentially repeating the existing provision from s 54 of the Companies Act 1955. Venning J found support for his preferred interpretation in Registrar of Companies v Brierley, where Hutchison J held that “issued” in s 54 of the Companies Act meant the occasion on which the prospectus was registered, published and first distributed and accordingly that an offence under s 54 lay only in relation to that occasion.[16] The argument that a prospectus was issued when it was circulated or distributed to the public, so that issue occurred every time a prospectus was delivered to a member of the public, was rejected by Hutchison J.[17]
[20] Venning J noted that when the term “issued” was changed to “distributed” in s 58 of the SAct by an amendment in 1983, the change was made without any suggestion of widening the offence, apart from extending the scope of s 58 to include untrue statements in advertisements.[18]
[21] Venning J also held that, in light of his previous findings that there is not a separate act of distribution every time a member of the public avails him or herself of the information previously distributed, it was an abuse of process to have the same particulars charged in different counts for different time periods.[19]

The legislation

[22] Before the SAct was enacted in 1978, securities regulation was piecemeal and entity based. The main source of regulation was the Companies Act 1955.[20] There was no general disclosure regime applying to all those seeking to raise funds from the public.[21]
[23] The SAct introduced an activity-based regime based on the principle that disclosure of information allows informed investment decisions to be made.[22] It was passed against the background of a number of corporate collapses in the 1970s.[23]
[24] As introduced, the Securities Advertising Bill 1977[24] contained detailed provisions regarding prospectuses and advertisements. Those provisions were heavily criticised by the commercial community, who argued that the Bill was unworkable and unnecessarily restrictive.[25] It was suggested that the detailed requirements be left to a body of experts (a Commission) and regulations. Those suggestions were taken up. The SAct established a Securities Commission with responsibility for, amongst other things, drafting the required regulations.[26]
[25] As a result, only limited parts of the SAct came into force on 1 May 1979.[27] The Securities Commission, in preparing the required regulations, produced a Background Paper on Financial Advertising Control,[28] followed by Proposed Recommendations, first in 1980,[29] and a second draft in 1981.[30] These recommendations were the catalyst for the Securities Amendment Act 1982 (the 1982 Act).[31] The remaining parts of the SAct came into force, as amended,[32] with the Securities Regulations on 1 September 1983.[33]
[26] Currently,[34] the SAct provides for a two-tier disclosure requiring a prospectus and an investment statement.[35] The concept of an investment statement was inserted into the SAct by the Securities Amendment Act 1996 (the 1996 Act).[36] An investment statement is the primary disclosure document and is intended to provide a concise summary of the offer and to refer the prospective subscriber to other documents, such as a registered prospectus, for more detailed information. Section 38D provides that the purpose of an investment statement is to:

(a) Provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to subscribe for securities; and

(b) Bring to the attention of such a person the fact that other important information about the securities is available to that person in other documents.

[27] Section 38E sets out the required content of an investment statement, although this is in large part left to regulations under the SAct. The Securities Regulations 2009 currently stipulate 11 questions that must be specifically answered in an investment statement.[37] Investment statements do not have to be registered with any regulator but must be provided to the investor before subscription for any security.[38]
[28] An investment statement is deemed to be an advertisement under the SAct.[39] Accordingly, investment statements are subject to the requirements relating to advertisements, including that an advertisement not be misleading with regard to a particular that is material to the offer of securities.[40]
[29] Prospectuses contain more detailed information about the security and the issuer and must be registered with the Registrar of Companies.[41] A prospectus is normally valid for a period of nine months from the date of the financial statements of the issuer referred to in the prospectus although extensions are possible.[42] A registered prospectus must be current at the time of any subscription for securities.[43]
[30] Under s 34(1)(b) of the SAct, a registered prospectus may not be distributed if it is false or misleading in a material particular, regardless of whether it became so as a result of a change in circumstances occurring after the date of the prospectus. Section 34 provides:[44]

34 Restrictions on distribution of prospectuses

(1) No registered prospectus shall be distributed by or on behalf of an issuer,—

(a) After it has been amended unless all the amendments have been incorporated in, or attached by way of an instrument to, every copy of the registered prospectus that is so distributed; or

(b) If it is false or misleading in a material particular by reason of failing to refer, or give proper emphasis, to adverse circumstances (whether or not it became so misleading as a result of a change in circumstances occurring after the date of the prospectus).

(2) A registered prospectus shall not be distributed by or on behalf of an issuer unless it is accompanied by,—

(a) If the registered prospectus refers to, but does not contain, financial statements registered under the Financial Reporting Act 1993, a copy of those financial statements; and

(b) A copy of any documents registered under this Act for the purpose of extending the period during which allotments may be made under the registered prospectus.

(3) However, subsection (2)(a) does not apply to a simplified disclosure prospectus.

[31] Section 33 of the SAct prohibits the offer of securities to the public without complying with the prescribed disclosure requirements. Under s 37, an allotment of securities is void where there was no registered prospectus.[45]
[32] Section 37A provides that certain allotments of securities are voidable. The circumstances under s 37A include where the subscriber did not receive an investment statement before subscribing or where, at the time of allotment, the investment statement or registered prospectus is known by the issuer (or any director of the issuer) to be false and misleading in a material particular (whether or not it became false or misleading as a result of a change in circumstances).
[33] The “distribution of an advertisement or a registered prospectus that includes an untrue statement” is a civil liability event under the SAct.[46] Sections 56 and 57 determine who is liable for certain civil remedies for that event.[47] Section 56 provides civil liability for the issuer, director of the issuer, and promoter of the securities, and s 57 provides civil liability for experts, subject to various defences. Section 56 is structured similarly to s 58, and materially provides that:[48]

56 Which persons are liable for misstatements

(1) A person is liable for a pecuniary penalty order (section 55C) and for compensation (section 55G) for the distribution of an advertisement or registered prospectus that includes an untrue statement if—

(a) the person is the issuer of the securities referred to in the advertisement or registered prospectus (the “issuer”) and the issuer is an individual:

(b) in the case of an advertisement, the person—

(i) is a director of the issuer at the time that the advertisement is distributed; or

(ii) has authorised himself or herself to be named and is named in the advertisement as a director of the issuer or as having agreed to become a director immediately or after an interval of time:

(c) in the case of a registered prospectus, the person—

(i) has signed the prospectus as a director of the issuer or is a director on whose behalf the prospectus has been so signed; or

(ii) has authorised himself or herself to be named and is named in the prospectus as a director of the issuer or has agreed to become a director either immediately or after an interval of time:

(d) the person is a promoter of the securities referred to in the advertisement or registered prospectus.

...

[34] Section 58 is the main concern of this judgment. It is one of the sections imposing criminal liability for breaches of the SAct. It reads:[49]

58. Criminal liability for misstatement in advertisement or registered prospectus

(1) Subject to subsection (2) of this section, 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) of this section if the person proves either that the statement was immaterial or 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) of this section, where a registered prospectus that includes an untrue statement is distributed, every person who signed the prospectus, or on whose behalf the registered prospectus was signed for the purposes of section 41(1)(b) of this Act, commits an offence.

(4) No person shall be convicted of an offence under subsection (3) of this section if the person proves either that the statement was immaterial or 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.

(5) Every person who commits an offence against this section is liable—

(a) on conviction on indictment to—

(i) imprisonment for a term not exceeding 5 years; or

(ii) a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is continued; or

(b) on summary conviction to—

(i) imprisonment for a term not exceeding 3 months; or

(ii) a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is continued.

[35] Section 55 gives an expanded definition of untrue statement. It provides:

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:

(b) A statement is deemed to be included in an advertisement or registered prospectus if it is—

(i) Contained in the advertisement or registered prospectus; or

(ii) Appears on the face of the advertisement or registered prospectus; or

(iii) Contained in any financial statements, report, memorandum, or document that accompany, or are incorporated by reference or referred to in, or distributed with, the advertisement or registered prospectus:

(c) A certificate registered under section 37A(1A) of this Act, and any financial statements that accompany that certificate, shall be deemed to be included in the registered prospectus to which the certificate relates.

[36] Section 59 is a further criminal penalty provision relating to the offering, distributing or allotting of securities in contravention of the SAct.[50] Section 59 provides liability for a wider range of persons than ss 56 and 58, as it includes “every person who is a principal officer of the issuer at the time of the contravention”.[51] Penalties include fines only (but at the same levels as under s 58) on summary conviction. Section 59 reads:

59. Criminal liability for offering, distributing, or allotting in contravention of this act

(1) Subject to subsection (2) of this section, if an offer of a security is made to the public, or a registered prospectus relating to a security is distributed, or a security is allotted, in contravention of this Act, (or, in the case of an interest in a contributory mortgage, in contravention of regulations made under this Act),—

(a) The issuer of the security; and

(b) Every person who is a principal officer of the issuer at the time of the contravention; and

(c) Every promoter of the security; and

(d) Every person who has authorised himself or herself to be named and is named in any advertisement or registered prospectus relating to the security as a director of the issuer or as having agreed to become a director either immediately or after an interval of time—

each commits an offence, and is liable on summary conviction to a fine not exceeding $300,000 and, if the offence is a continuing one, to a further fine not exceeding $10,000 for every day or part of a day during which the offence is continued.

(2) No person shall be convicted under subsection (1) of this section for any such contravention if—

(a) The contravention was in respect of matters which in the opinion of the Court dealing with the case were immaterial, or was otherwise such as, in the opinion of the Court having regard to all the circumstances of the case, ought reasonably to be excused; or

(b) In the case of a person other than the issuer, in the opinion of the Court dealing with the case, the contravention did not take place with his or her knowledge and consent.

[37] The term “distribute” is defined by s 2 of the SAct:

distribute includes—

(a) Make available, publish, and circulate; and

(b) Communicate by letter, newspaper, broadcasting, sound recording, television, cinematographic film, video, or any form of electronic or other means of communication:

[38] Section 2A provides the definition of an advertisement. Under s 2A(2)(b) an investment statement is deemed to be an advertisement. Section 2A provides in relevant part:[52]

2A Meaning of “advertisement”

(1) In this Act, unless the context otherwise requires, advertisement means a form of communication—

(a) That—

(i) Contains or refers to an offer of securities to the public for subscription; or

(ii) Is reasonably likely to induce persons to subscribe for securities of an issuer, being securities to which the communication relates and that have been, or are to be, offered to the public for subscription; and

(b) That is authorised or instigated by, or on behalf of, the issuer of the securities or prepared with the co-operation of, or by arrangement with, the issuer of the securities; and

(c) That is to be, or has been, distributed to a person.

(2) The following are also advertisements:

(a) A statement relating to an interest in a contributory mortgage required to be distributed to a person by regulations:

(b) An investment statement.

(c) documents, information, and other matters required to be made publicly available under section 54C.

(3) None of the following is an advertisement:

(a) A registered prospectus:

(b) Repealed.

(c) A statement or report made in accordance with section 3(7) of this Act:

(d) A disclosure statement published by a registered bank under section 81 of the Reserve Bank of New Zealand Act 1989.

...

[39] The phrase “an offer of securities to the public” determines the scope of many of the provisions of the SAct. Section 3 materially provides that:

3. Construction of references to offering securities to the public

(1) Any reference in this Act to an offer of securities to the public shall be construed as including—

(a) A reference to offering the securities to any section of the public, however selected; and

(b) A reference to offering the securities to individual members of the public selected at random; and

(c) A reference to offering the securities to a person if the person became known to the offeror as a result of any advertisement made by or on behalf of the offeror and that was intended or likely to result in the public seeking further information or advice about any investment opportunity or services,—

whether or not any such offer is calculated to result in the securities becoming available for subscription by persons other than those receiving the offer.

(2) None of the following offers shall constitute an offer of securities to the public:

(a) An offer of securities made to any or all of the following persons only:

...

(4) Any reference in this Act to an offer of securities to the public shall be construed as including a reference to distributing an advertisement, a prospectus, a registered prospectus, or an application form for the subscription of securities.

...

The issue redefined

[40] The issue was posed before Venning J as a choice between initial distribution and continuing distribution, with an emphasis on the meaning of the word “distribute”. In the course of argument both parties accepted that s 58 contemplates continuing distribution, unsurprisingly as s 58(5)(a)(ii) and (b)(ii) both refer to a continuing offence.
[41] The real issue in our view is therefore not so much the meaning of “distribute” in s 58, although that remains important. It is whether, to attract criminal liability under s 58, a statement must be untrue at the time of first distribution or whether criminal liability can attach with regard to a statement that becomes untrue later. Thus the issue is whether there can be different particulars for different periods of a continuing offence (as the Crown asserts) or whether (as Mr Steigrad asserts) the particulars must remain constant throughout, being only the statements that were untrue at the time of first issue.
[42] We now turn to the interpretation of s 58 itself, starting with the words of that section. We then move on to discuss the statutory context (including s 59), followed by the purpose of the SAct and the legislative history. Finally, we address some particular issues raised by Mr Keene QC with regard to the Crown’s interpretation of s 58.

Words of the section

[43] As set out at [34] above, s 58(1) and (3) provide for criminal liability on a stri[53] liability53 basis for where a registered prospectus or advertisement containing an untrue statement “is distributed”. The prosecution is not required to demonstrate that any investor was actually misled by the untrue statement, suffered loss or e[54]n read it.54
[44] Section 58 offences are subject to statutory defences which the defendant must prove on the balance of probabilities. The statutory defences are either that the statement was immaterial or that the person had reasonable grounds to believe and did believe, up to the time of the distribution of the prospectus or advertisement, that the statement was true.[55]
[45] With regard to advertisements, criminal liability attaches to the issuer of the securities if the issuer is an individual or, if the issuer of the securities is a body, the person who is a director of that body at the time the advertisement is distributed.[56] For prospectuses, criminal liability arises for those who signed the prospectus.[57]
[46] Section 58 provides for either summary conviction or conviction on indictment. Penalties are imprisonment or a fine. It is clear from the penalty provisions that the offence can be a continuing one.[58]
[47] Mr Keene, on behalf of Mr Steigrad, submits that the terms “distributed” and “distribution” in s 58 mean first distributed and first distribution. He submits that, at least in the case of a registered prospectus, this means when it is first made available to the public by being registered.
[48] The words “distributed” and “distribution” are used in s 58 in a number of places. There is nothing in the wording of the section to suggest that the terms are used in a different sense in different parts of the section. In particular, the term must have the same meaning in s 58 with regard to both advertisements and registered prospectuses. As they are dealt with in separate subsections, it would have been easy to use different terms for each if a different meaning was intended.
[49] In our view, the inclusion of advertisements in s 58 creates problems for Mr Steigrad’s argument. Given the range of forms of communication to which “advertisement” can refer, it is difficult to identify a clear point at which all of the various types of advertisements are “first distributed” and which would satisfy the purpose of s 58. In addition, the term distribute, in the context of an advertisement, expressly contemplates an individual communication to a specific subscriber. Advertisement is defined in s 2A as a form of communication “that is to be, or has been, distributed to a person”.[59] The former definition of advertisement, inserted by the Securities Amendment Act 1982 (the 1982 Act),[60] also included these elements.[61]
[50] The difficulties with Mr Steigrad’s argument can be illustrated by considering the position relating to investment statements. These are defined as advertisements for the purposes of the SAct.[62] Investment statements are not required to be registered and so the argument that distribution equates to registration is not available in respect of investment statements. Investment statements do have to be in writing and dated, but those preparatory acts do not make the statements available to the public.
[51] Investment statements have to be provided to a person before he or she subscribes for securities.[63] This presupposes an individual communication to a specific member of the public. In our view the definition of the term “distribute” in s 2 contemplates individual communication.[64] It includes not only making available, publishing and circulating but also communications by letter or by electronic means. It is difficult to escape the conclusion that every communication of an investment statement to an individual investor is an act of distribution that is caught by s 58. And from that position, there seems no reason to confine distribution to the first prospective investor who receives an investment statement.
[52] As noted above, however, the real issue is not so much the meaning of the term “distribute” but the timing of the assessment of whether or not a statement is untrue. Mr Keene submits that the reference in s 58(3) to every person who signed the prospectus, must refer back to the “prospectus that includes an untrue statement”. He says that a person cannot sign a prospectus that includes an untrue statement if the statement was accurate at the time of signing.
[53] We do not consider that s 58(3) links the signing and the untrue statements in the manner alleged. Section 58(3) first sets out when an offence is committed (ie when a registered prospectus that contains an untrue statement is distributed) and then sets out those liable (ie those who signed the prospectus).[65] In this regard we note the present (passive) “is distributed” and the past tense “signed”.[66]
[54] Section 58(3) provides for liability where a registered prospectus “that includes an untrue statement is distributed.”[67] There is nothing to suggest that there is any temporal difference between “includes” and “is distributed”. Whether or not there is an untrue statement appears to be judged as at the time the registered prospectus is distributed. As distribution includes individual acts of communication,[68] this must mean that whether or not a statement is untrue is judged at the time of all such communications. Further, there is much in the Crown’s contention that a plain and natural meaning of the words “is distributed” simply connotes a state of affairs in which the relevant untruth is being placed before the public by the issuer.
[55] In any event, Mr Steigrad’s argument[69] does not apply to advertisements (as liability only ensues for those who are directors at the time of distribution).[70] It would be odd indeed if liability for statements that later became untrue was different between investment statements and prospectuses, given the close links between the two documents in the two-tier disclosure regime.[71]
[56] We also consider that the interpretation urged on us by the Crown fits more readily with the defences in s 58(2) and (4). Assume a prospectus with an untrue statement in it at the time of registration. In the context of a continuing offence, it would seem odd for a person to have a complete defence if, up until the time of first distribution (registration) of a prospectus, he or she believed and had reasonable grounds to believe, that the statement was true. This would enable continued distribution with no criminal liability under s 58, even if the person had found out the day after registration that the statement was untrue.[72]
[57] We reject Mr Steigrad’s contention that the wording of the defence provisions fixes a particular time as the relevant time of distribution for the purposes of s 58. While those provisions fix the reasonable belief up to the time of distribution, there is no reason to suggest this does not contemplate continuing distribution, particularly given that s 58 contemplates a continuing offence.
[58] There is more to Mr Steigrad’s contention that, taken to its logical conclusion, if each individual act of distribution (particularly in electronic media) is seen as a separate offence then potentially, there could be hundreds of individual charges and someone could be liable to a fine of up to $300,000 for each instance of individual distribution.[73]
[59] Even if that is the case in theory, however, we would expect the Crown to lay charges in the manner it has in this case – separate charges only for periods where the particulars differ.
[60] This means that we accept the Crown’s submission that the wording of s 58 allows there to be different particulars for different periods of the continuing distribution, depending on when statements became untrue. This means that s 58 allows for liability where statements became untrue after the registered prospectus or advertisement is first made available to the public, due to a change in circumstances.
[61] We are bolstered in this view by the fact that Mr Steigrad’s proposed interpretation requires additional words to be read into the section to make it clear that the untruth of a statement is judged at the time of first release to the public and not on a continuing basis. Adding words is very rarely legitimate.[74]

Statutory context

[62] The interpretation we favour is also in line with the broader statutory context. In our view, s 58 must be read in the context of the sections which impose the primary and corresponding duties with regard to prospectuses and investment statements. These sections clearly require issuers and directors of issuers to ensure that investment statements, prospectuses and other advertisements do not mislead or deceive.[75]
[63] Section 34 is particularly relevant as it provides that no registered prospectus “shall be distributed” if “it is false or misleading ... (whether or not it became so misleading as a result of a change in circumstances occurring after the date of the prospectus)”.[76] For the “change in circumstances” clarification to have any effect, “distributed” in s 34 cannot be limited to first distribution.[77]
[64] We accept the Crown’s submission that there is also a natural alignment between the concept of distribution in s 58 and the notion of an “offer” that stands to be accepted or rejected by the public, including individual members of the public. Under the SAct, “any reference ... to an offer of securities to the public” must be construed as including a reference to distributing an advertisement or registered prospectus.[78] The phrase is also to be construed as including a reference to offering the securities to individual members of the public, in certain cases,[79] with express exceptions for certain other individuals.[80]
[65] Venning J found support for his conclusion in s 55, which provides that a statement is deemed to be untrue if it is misleading “in the form and context in which it is included”.[81] He held that the use of the phrase “in which it is included” is more consistent with the statement being untrue at the time it was initially included in the advertisement or registered prospectus, rather than the statement becoming untrue later.[82] However, the use of that phrase could also simply make it clear that a statement can be misleading in form or context, even if it is technically accurate. In that sense, a statement could equally be misleading, “in the form and context in which it is included”, due to a change of circumstances.
[66] Venning J examined a number of sections in the SAct which he considered used the term “distribution” in the sense of “first distribution”.[83] He relied on those sections as support for the proposition that “distribution” may mean different things in different sections of the SAct.[84] We accept that some of the sections he refers to make a temporal distinction between events before distribution and events after distribution.[85] In such sections the first instance of distribution may be the significant one. There is, however, no such temporal distinction made in s 58 (apart from in the defences). Because the sections Venning J refers to are not directly relevant we comment no further but we are not to be taken as necessarily agreeing with Venning J’s views on the interpretation of those sections as being limited to first distribution.

Section 59

[67] Mr Keene submits that the policy choice made by the legislature was to deal with the distribution of prospectuses and investment statements containing untrue statements at inception under s 58, but to use s 59 to deal with the distribution of such documents with statements that became untrue later.
[68] We do not accept this submission. If that had been the intent, then we would have expected the alleged distinction between s 58 and s 59 in this regard to have been made explicitly. Instead, s 59 uses the same term with regard to prospectuses (“is distributed”) as is used in s 58.[86] There is nothing to suggest it has a different meaning in s 58 than it does in s 59.
[69] Further, s 59 does not explicitly cover advertisements and again one would have expected it to do so if it was meant to cover the situation where advertisements (including investment statements) became false and misleading after first distribution. It might be argued that advertisements are covered as they might constitute an offer in contravention of the SAct but that still does not explain why prospectuses and not advertisements would be singled out for separate mention.[87]
[70] Further, where a security has been allotted on the basis of a prospectus or advertisement known to be false or misleading, this can be seen as being in contravention of the SAct, whether or not the prospectus or advertisement became false or misleading as a result of a change in circumstances (although the allotment is voidable only).[88] This would, however, be a back door and a far from certain method of creating liability for distributing material which includes statements that become untrue.
[71] We also accept the Crown’s submission that it is significant that s 59 cannot be charged in an indictment. This means that the Crown could charge in the alternative (on the basis that representations in prospectuses either were untrue at “first distribution” or at least became untrue subsequently) only by proceeding summarily, regardless of the gravity of the offending.[89] This inconsistency would be all the more unjustifiable in cases where the defendant comes to know of the untruth only after “first” distribution. In that setting, potential liability under s 58 for a “first distribution” might be based on (less serious) negligence whereas liability for an identical untruth in a subsequent distribution could be prosecuted only under s 59, even if based on (more serious) “actual” knowledge.
[72] Mr Keene submits that the difference between s 58 and s 59 is that s 58 is directed at commissions (being the signing of and releasing of a prospectus with untrue statements and the releasing of any related advertisement) and s 59 at omissions (in this context failing to take steps to withdraw the prospectus or advertisement once a statement becomes untrue).
[73] We do not accept Mr Keene’s submission. In our view, the difference between s 58 and s 59 in this context is between having a prospectus or advertisement which is before the public with untrue statements in it (which is deemed serious enough to allow the Crown to proceed indictably and to have a prison term as a consequence of breach) and other breaches of the SAct which do not result in untrue statements being before the public.

Purpose of the SAct

[74] While it does not have an express purpose provision, this Court has held that the scheme of the SAct shows that its purpose is to protect the investing public through timely disclosure of material information.[90] Richardson J stated:[91]

The pattern of the Securities Act and the sanctions it imposes make it plain that the broad statutory goal is to facilitate the raising of capital by securing the timely disclosure of relevant information to prospective subscribers for securities. In that way the Act is aimed at the protection of investors. That aim is achieved by regulating the conduct of issuers of securities and by providing sanctions for infringement by those issuers and their officers.

[75] We accept the Crown’s submission that its interpretation is consistent with a broader view of the context of financial markets that recognises that all offers of securities to the public (including all distributions of prospectuses or advertisements) involve information asymmetries between those soliciting and those investing funds. Money is solicited from an investing public that is highly dependent upon the truth of disclosure at the time of investment.
[76] The risk of untrue statements is a direct challenge to the integrity of this regime and those seeking funds are in the best position to guard against that risk. As the Crown points out, liability extends only to persons who knowingly and voluntarily participate in a regulated regime, with the purpose of making money.
[77] We also accept the Crown’s submission that the purpose of investor protection is fulfilled by regarding the words “is distributed” in s 58 as relating to the period during which an offer document is made available to the public for the purpose of inducing subscription. For so long as a statement “is distributed” in this sense, it is capable of misleading prospective subscribers.
[78] Further, we agree with the Crown’s submission that it is significant that this case relates to offers to the public of debt securities in the form of term deposits. Such offers are generally made on an ongoing basis.[92] A single prospectus, if extended, can continuously solicit funds for a period of up to 18 months beyond the initial “act” of distribution. We therefore accept the Crown’s submission that accurate disclosure throughout the life of a prospectus or duration of an advertising campaign is essential to the integrity of markets for such deposits and in line with the purpose of the SAct.

Legislative history

[79] As is often the case, the particular issue we are concerned with was not addressed directly over the course of the legislative process. Having said this, in our view the legislative history strongly favours the interpretation urged upon us by the Crown.

The 1977 Bill

[80] What became the Securities Act 1978 started life as the Securities Advertising Bill 1977 (the 1977 Bill).[93]
[81] In the first version of the 1977 Bill, criminal liability (both summary and on indictment) for misstatements in a prospectus was provided in cl 39. This was followed by civil liability for misstatements in a prospectus in cl 40.[94] Clause 42 provided for other offences, including summary liability for offers of securities and issue of prospectuses in contravention of the SAct.[95]
[82] Clauses 39 and 40 essentially repeated the existing sections from the Companies Act 1955.[96] Clause 39 provided that:

39. Criminal liability for mis-statements in prospectus

(1) Where a prospectus that includes any untrue statement is issued, every person who authorised the issue of the prospectus commits an offence and is liable–

(a) On conviction on indictment, to imprisonment for a term not exceeding 2 years or to a fine not exceeding $25,000, or to both; or

(b) On summary conviction, to imprisonment for a term not exceeding 3 months or to a fine not exceeding $15,000, or to both,–

unless he proves either that the statement was immaterial or that he had reasonable grounds to believe and did, up to the time of the issue of the prospectus, believe that the statement was true.

...

[83] It is true that cl 39 used the term “issue” but the first version of the 1977 Bill defined “issue”in cl 2 as follows:[97]

“Issue” includes make available, publish, circulate, and distribute; and also includes disseminate by letter, newspaper, broadcasting, television, cinematograph film, or any other means whatsoever:

[84] This definition is similar to the current definition of “distribute”[98] and, as we have noted above, we consider that this definition favours the Crown’s interpretation.[99] There was no specific comment on the liability provisions in the first reading debate. However, contrary to Venning J’s view, we consider that the definition of “issue” shows that a wider interpretation was intended than the term had been given in Registrar of Companies v Brierley.[100]
[85] This conclusion is reinforced by the fact that the term “issue” was used in other sections of the 1977 Bill where clearly it covered untrue statements over the currency of the prospectus. Clause 12 of the 1977 Bill, which is in part the origin of s 34, provided restrictions on the issue of prospectuses. Clause 12(4) provided that:

No prospectus that contains, or has attached thereto, misleading accounts or other information shall be issued, whether or not the accounts or information became misleading as a result of a change in circumstances occurring after the date of the prospectus.

(Emphasis added.)

Statutes Revision Committee changes

102. After its first reading, the 1977 Bill was sent to the Statutes Revision Committee. Clause 12 was struck out.[101] A new cl 8, as drafted by the Committee, became s 34 in the SAct, as enacted in 1978,[102] without material amendment.[103] The Committee’s version used the term “distribute” rather than “issue”.[104] The Committee’s cl 8, which provided for “Restrictions on distribution of prospectuses”, read:[105]

No prospectus shall be distributed, by or on behalf of an issuer,—

(a) After it has been amended, unless a memorandum of all the amendments has been registered pursuant to section 21 of this Act and all the amendments have been incorporated in every copy of the prospectus that is so distributed; or

(b) After the cancellation of its registration pursuant to section 22 of this Act; or

(c) If it is false or misleading in a material particular by reason of failing to refer, or give proper emphasis, to adverse circumstances (whether or not it became so misleading as a result of a change in circumstances occurring after the date of the prospectus).

[87] With the change in terminology from “issue” to “distribute” in what became s 34,[106] the definition of “issue” was replaced in essentially the same terms with a definition of “distribute” as follows:[107]

“Distribute” includes make available, publish, and circulate; and also includes disseminate by letter, newspaper, broadcasting, television, cinematograph film, or any other means whatsoever:

[88] In relation to the civil and criminal liability provisions, the Committee made a number of changes.[108] The provision that became s 58 of the SAct remained, however, in very similar terms to the old Companies Act provision[109] and continued to use the term “issued”. As enacted, s 58 read:

Where a prospectus that includes any untrue statement is issued, every person who signed the prospectus, or on whose behalf the prospectus was signed, for the purposes of section 41(b) of this Act, commits an offence and is liable—

...

[89] We do not, however, consider that this heralded an intention to return the section to the narrow scope in Registrar of Companies v Brierley. This was a new Act and the penalty sections would have had to be interpreted in light of the whole of that Act (including s 34) and in particular in light of its purpose.
[90] We also consider it of significance that s 58 did not come into force until after the 1982 Act, and by that time, as we note below,[110] the word “issued” had been changed to “distributed.” It does not seem right to colour the interpretation of the word “distributed” by reference to the inclusion of the word “issued” in a section that never came into force.

Securities Commission consideration

[91] Following the enactment of the SAct,[111] the Securities Commission produced a Background Paper on Financial Advertising Control,[112] in anticipation of the promulgation of regulations under that Act. In that Background Paper there is a passage relied on by Venning J.[113] It provided in full:[114]

Finally in this review of the provisions of the Act, we turn to the matter of sanctions for breach of the Act and regulations made under it. There are provisions for civil liability (ss 56 and 57), criminal liability (ss 58, 59 and 60), provisions making void attempts by contract to exclude the statutory liabilities (ss 61 and 62), and provisions enabling the Court to give relief in certain cases (s 63). It is evident from these provisions that the legislature takes a very serious view of breach of the provisions of the Act. Section 58, for example, provides that every person who, personally or by his agent, signs a prospectus which contains an untrue statement and is issued, commits an offence and is liable to imprisonment for a term not exceeding two years or to a fine not exceeding $25,000.00, or to both, unless he proves either that the statement was immaterial or that he had reasonable grounds to believe and did, up to the time of the issue of the prospectus, believe that the statement was true.

[92] Venning J saw this quotation as providing some support for his preferred interpretation of s 58. We accept that it can be read as doing so in that it says that every person who signs a prospectus which contains an untrue statement is liable. This implies that the statement must be untrue at the time of signing. However, we have reached a contrary conclusion on the interpretation of s 58.[115] It is the statute we must interpret and not the Commission’s erroneous summary of the section.

The 1982 Act

[93] As discussed, the Commission’s recommendations were followed by the enactment of the Securities Act regulations, the 1982 Act, and the coming into force of the balance of the SAct.[116]
[94] The 1982 Act made some significant changes to the civil and criminal liability provisions.[117] For the purpose of the issue in this case, the key changes are that s 58 was expanded to apply to advertisements as well as prospectuses and that the term “issued” was replaced by the term “distributed” throughout the section. Section 58 accordingly read:[118]

58. Criminal liability for misstatement in advertisement or registered prospectus

(1) 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) Where a registered prospectus that includes any untrue statement is distributed, every person who signed the prospectus, or on whose behalf the registered prospectus was signed for the purposes of section 41(b) of this Act, commits an offence.

...

[95] We accept the Crown’s submission that it is not right, as Venning J suggested, that the term “distributed” was introduced into the SAct only because it was a more appropriate way of covering dissemination of advertisements. The 1982 Act did not simply amend the SAct by introducing the term “distributed” in the new subsection relating to untrue statements in advertisements.[119] It also amended the existing provision relating to untrue statements in registered prospectuses by replacing the term “issue” with “distributed” in that subsection.[120] Had it been intended to introduce “distributed” only because it was more appropriate for advertisements, there would have been no need to amend the subsection dealing with the issue of registered prospectuses.
[96] A definition of advertisement was also inserted by the 1982 Act. Relevantly, that definition[121] provided that an “advertisement” means a “form of communication” which is “distributed to any person” (emphasis added).[122] The notion is that the communication of an advertisement is at an individual level and a two way process.

123. The 1982 Act also inserted provisions making certain allotments void and some voidable. Section 37A was inserted by s 16 of the 1982 Act.[123] As enacted in 1982, s 37A provided that an allotment made in contravention of that section was voidable at the instance of the subscriber by notice in writing within the prescribed period.[124] An allotment contravened s 37A, inter alia where:[125]

(1) No allotment of a security offered to the public for subscription shall be made if —

...

(c) The form of application for the security was not distributed to the subscriber in or with a registered prospectus relating to the security; or

(d) The form of application for the security was distributed to the subscriber in or with a registered prospectus that is known by the issuer of the security, or any director of the issuer, at the time of allotment, to be false or misleading in a material particular by reason of failing to refer, or give proper emphasis, to adverse circumstances (whether or not the registered prospectus became so misleading as a result of a change of circumstances occurring after the date of the registered prospectus); or

...

(Emphasis added.)

[98] Both s 37A(1)(c) and (d) refer to the application for the security being “distributed to the subscriber” in or with a registered prospectus. Paragraph (d) clarifies that a misleading prospectus includes a prospectus that became misleading after registration. It is significant that this provision was inserted into the SAct at the same time that s 58 was amended to refer to a registered prospectus being “distributed” as opposed to “issued”. The use of “distributed” in s 37A supports our view on the definition of “distribute” being concerned with two equal actors: the distributor and the recipient. The term “distribution” is expressly and directly linked to a subscriber. And it does not matter whether the registered prospectus was misleading from the outset, or misleading due to a change of circumstances after registration.

The 1994 Act

[99] The next significant amendment to s 58 was by s 2 of the Securities Amendment Act (No 2) 1994 (the 1994 Act).[126] Following the comments of Barker J in Rada Corp (No 2),[127] the section was amended to confirm that the defences are affirmative defences rather than limited to penalty. This does not advance the case for either interpretation.

The 1996 Act

[100] The 1996 Act introduced the concept of investment statements, and deemed them to be advertisements for the purpose of the SAct.[128] The definition of advertisement in s 2A in its current form was inserted at the same time.[129]

[101] There were other changes of some note. The definition of “distribute” in its current form in s 2 was substituted by s 3(7) of the 1996 Act. The new definition followed the Justice and Law Reform Committee’s report on the Investment Product and Adviser (Disclosure) Bill 1995 (the 1995 Bill),[130] and is also its current form.[131] The new definition includes “any form of electronic ... communication”.[132] The first version of the 1995 Bill used the term “disseminate” in the definition.[133] The Justice and Law Reform Committee replaced that with the current word “communicate”.

[102] It seems to us that the change from disseminate to communicate may be of some significance. The term “communicate” clearly envisages at least two actors (because communication surely requires receipt) while disseminate could be seen as having just one actor as its focus, the disseminator/distributor. “Distribution”, as a “communication”, is a process between the relevant individuals, requiring assessment from the receiver’s perspective as well as the distributor’s. There is a connection with the definition of advertisement, both before and after the 1996 Act, as being a “communication” “distributed to a person”.[134]
[103] After the introduction of investment statements, s 37A was also amended. Section 37A(3) still provides that an allotment made in contravention of that section is voidable at the instance of the subscriber by notice within the prescribed period. The significant change, following the 1996 Act, is to the contravening allotments. No allotment shall be made if, inter alia:[135]

(a) The subscriber did not receive any investment statement relating to the security before subscribing for the security; or

(b) At the time of allotment, any investment statement or registered prospectus relating to the security is known by the issuer of the security, or any director of the issuer, to be false or misleading in a material particular by reason of failing to refer, or give proper emphasis, to adverse circumstances (whether or not the investment statement or registered prospectus became so false or misleading as a result of a change of circumstances occurring after the date of the investment statement or registered prospectus); or

...

(Emphasis added.)

[104] The material difference between s 37A before and after the 1996 Act is that investors must receive an investment statement rather than a registered prospectus prior to subscription. The change in terminology from “distributed”[136] to “received” is in our view a clarification, rather than a significant change, but nevertheless emphasises the two way process involved. The 1996 Act inserted a definition of “receive” in s 2:

receive, in relation to a document, information, or other matter, includes receive by any form of electronic or other means of communication in a manner that enables the recipient to readily store the document, information, or other matter in a permanent form and, with or without the aid of any equipment, to retrieve and read it:

The 2002 Act

[105] The next significant[137] amendment of the liability provisions came in 2002. Certain criminal liability provisions (including, but not limited to, ss 58 and 59) were amended by ss 16 and 17 of the Securities Amendment Act 2002 (the 2002 Act), to increase the maximum penalties and to provide for additional penalties “if the offence is a continuing one” in s 58(5).
[106] The 2002 Act started out life as the Securities Markets and Institutions Bill 2001 (the 2001 Bill). The explanatory note to the 2001 Bill identifies, as one of its “key proposals”:[138]

increasing certain penalties under the Securities Act 1978 to a more realistic level so as to enhance the effectiveness of the Act’s core requirements:

[107] The explanatory note goes on to describe the amendments to the criminal liability provisions, but does not shed any light on the meaning or purpose of “continuing offences”.[139]
[108] The Finance and Expenditure Committee very briefly commented on the increase in penalties:[140]

The bill increases certain penalties under the Securities Act 1978 to strengthen deterrence. As mentioned in the introduction future work is being done on penalties.

[109] While nothing was said in 2002 explicitly that bears on the issue before us, in our view, the fact that s 58 was made a continuing offence strengthens the view that it was intended to ensure that the public were not misled on a continuing basis and thus supports our conclusion that s 58 was designed to punish untrue statements being disseminated to the public, whether they were untrue at inception or became so later. The amendment also clearly assumes that distribution can be a continuing act.

Issues with the Crown’s interpretation

[110] Mr Keene points to what he calls “extraordinary consequences” if the Crown’s interpretation is accepted. The first is the situation where a director resigns at a time when there were no untrue statements in the prospectus but where a statement becomes untrue after his or her resignation. He also points to the position of a promoter who might not have an ongoing role in a company after the registration of the prospectus.
[111] We accept there could be an issue with the Crown’s interpretation of s 58 in such cases. In our view, however, either the reasonable belief of the director or promoter under s 58(2) or (4) would be judged at the time of his or her resignation or cessation of involvement or, as the Crown submits, there is likely to be a common law no fault defence in such cases. Such a defence attaches to all strict liability offences unless ousted by express reference or necessary implication.[141]
[112] Secondly, Mr Keene submits that the continuing distribution is an act of the company and not the director and therefore that a director may have no ability on his or her own to prevent continuing distribution. Mr Keene submits that, contrary to Venning J’s view,[142] this issue is not resolved by the ability of the director to go to the Securities Commission where the other directors are unwilling to co-operate. In the period between the director learning that the statement has “become untrue” and the (now) Financial Markets Authority taking action to suspend, there is still liability under s 58 but no applicable defence.
[113] Like Venning J, we are not impressed by this argument. We accept the Crown’s submission that liability under s 58 will not extend to distributions that an issuer (or director) has done everything possible to prevent including going to the Financial Markets Authority. We would expect that such distributions would be within the ambit of the defence of no fault.
[114] Finally, Mr Keene points to the difficulties for directors in monitoring the continuing truthfulness of all statements made. In this regard, we accept the Crown’s submission that the promoters and directors of finance companies voluntarily enter the business of offering securities to the public in order to make money. Concerns about compliance costs on promoters and directors cannot be allowed to neuter what this Court has held to be the “broad statutory goal” of the SAct: facilitating “the raising of capital by securing the timely disclosure of relevant information to prospective subscribers for securities”.[143]
[115] As the Crown points out, the defence of reasonable belief in truth requires that monitoring of ongoing accuracy of statements need only be reasonable. The legislature in any event clearly recognised that distribution of untrue statements might be attended by varying degrees of culpability: s 58 is prosecutable summarily. Furthermore, ascribing liability for developing untruths is no more than a reflection of liability at common law.[144]

Conclusion

[116] Accordingly, we accept the Crown’s submission that s 58 allows there to be different particulars for different periods of the continuing distribution, depending on when statements became untrue. This means that s 58 allows for liability where statements become untrue (due to a change in circumstances) after the registered prospectus or advertisement is first made available to the public. This interpretation is more consistent with the wording of s 58, the statutory context and the legislative history of the SAct.

Extension certificates

[117] The parties asked us also to deal with the issue of false statements in extension certificates. Extension certificates were mentioned obiter by Venning J but not definitively dealt with in his judgment. As such, they do not come within the scope of the questions reserved for us. We thus make no comment on this issue.

Result

[118] The appeal is allowed. The indictment is properly framed and the repeated particulars are not an abuse of process.
[119] The question of law posed at [4] is answered as follows. The requirement for liability under s 58 (1) and s 58 (3) of the SAct that an advertisement or registered prospectus is distributed arises where, at any time the advertisement or registered prospectus is before the public, it contains an untrue statement. This applies whether that statement was untrue at inception or became so subsequently.
[120] There is no publication restriction with regard to this Court’s judgment and, by agreement of the parties, the publication restriction in relation to Venning J’s judgment is set aside.

Solicitors:
Crown Law Office, Wellington for Appellant
Lowndes Jordan, Auckland for Respondent

---

[1] Counts 10, 13, 16 and 18.
[2] R v Petricevic HC Auckland CRI-2008-004-29179, 25 March 2011.
[3] R v Petricevic HC Auckland CRI-2008-004-29179, 7 April 2011.
[4] This background is taken from Venning J’s judgment at [2]–[7].

[5] At [12].
[6] The same issue arises with regard to counts 13, 16 and 18.
[7] At [19]–[20] and [44]–[45].
[8] At [21].
[9] At [21]–[26].
[10] At [22]–[24].
[11] At [45] and [58].
[12] At [52].
[13] At [46].
[14] At [47]–[49].
[15] At [52].

[16] Registrar of Companies v Brierley [1965] NZLR 809 (SC) at 812–813. This was cited with approval by Peter Fitzsimons in “If The Truth Be Known: The Securities Act 1978 and Directors’ Liability for Misstatements in a Prospectus” (1999) 5 NZBLQ 164 at 172–173.

[17] At 811–812.
[18] At [38]–[39].
[19] At [59]–[62].

[20] Other legislation dealt with certain other entities. See for example the Unit Trusts Act 1960, the Protection of Depositors Act 1968, and the Syndicates Act 1973. See Jonathan Lindroos and Gordon Walker “A Short History of Securities Regulation in New Zealand” in Gordon Walker and Brent Fisse (eds) Securities Regulation in Australia and New Zealand (1st ed, Oxford University Press, Auckland, 1994) 59 at 68–70; Victoria Stace Securities Law in New Zealand (LexisNexis, Wellington, 2010) at 13–14.

[21] Stace at 3.

[22] See [74]; Stace at 14–15.
[23] Lindroos and Walker at 71–72; Stace at 14.
[24] The Securities Advertising Bill 1977 became the Securities Bill 1977 after its second reading.
[25] Lindroos and Walker at 73; Stace at 14.
[26] See ss 10 and 70.

[27] Part I and ss 1, 2, 5(5), 48(3), 48(4), 70, 72 and 76, being provisions that relate to the Commission. See Securities Act Commencement Order 1979.
[28] Securities Commission Background Paper on Financial Advertising Control (1979).
[29] Securities Commission Proposed Recommendations for Securities Regulations (1980).

[30] Securities Commission Proposed Recommendations for Securities Regulations: Second Draft (1981).

[31] The 1982 Act was enacted on 16 December 1982. Sections 1, 2, 7–12 and 35 (relating to the Commission) came into force on assent. The balance came into force with the Securities Act Commencement Order 1983 on 1 September 1983.

[32] In addition to the substantial changes made by the 1982 Act, the Securities Amendment Act 1979 made only minor amendments to ss 22 and 23 relating to the Commission.

[33] Securities Act Commencement Order 1983; Securities Regulations 1983, reg 1(2).

[34] The Government has decided to replace the two-tier disclosure regime of prospectus and investment statement with a single product disclosure statement with additional information to be held on the Register of Securities Offers (to be established by s 43N of the Securities Act 1978, as inserted by s 22 of the Securities Amendment Act 2011, which has not yet come into force). See Stace at 438–441. The relevant Cabinet minute is CBC Min (11) 4/3, CAB Min (11) 10/1.

[35] In some circumstances and for some issuers a shortened prospectus is permitted. There are two types of shortened prospectus: the short form prospectus, and the simplified disclosure prospectus. See Stace at ch 4.

[36] The relevant provisions came into force on 1 October 1997. An investment statement is defined in s 38C of the Securities Act 1978.

[37] Securities Regulations 2009, regs 19–21 and sch 13. The information required to be included in an investment statement has recently been updated by the Securities Amendment Regulations 2011, which came into force on 1 July 2011.
[38] Section 37A(1). Compare s 37(1).
[39] Section 2A(2)(b).

[40] Securities Regulations 2009, reg 23; previously Securities Regulations 1983, reg 8. Investment statements are exempt from the Commission’s (now the Financial Markets Authority’s) power to prohibit misleading advertisements in s 38B, but are subject to a specific and equivalent power in s 38F (until 30 April 2011, now s 43F). See also s 37A(1)(b).

[41] Prospectus requirements vary based on security, issuer and subscriber: see Securities Regulations 2009, Part 1. There are also exemptions from the Securities Act 1978: see s 5. See also Stace at ch 4.
[42] Section 37A(1)(c).
[43] Section 37(1).

[44] Prior to 1 May 2011, s 34(1)(a) read “memorandum” in place of “an instrument”. Subsection (3) was inserted from 28 July 2009.

[45] Subsections (2) and (3) provide particular circumstances where the allotment of an equity security or a participatory security is void.

[46] Section 55B. Sections 55A–55G were inserted by the Securities Amendment Act 2006 and took effect from 25 October 2006.
[47] Section 55A.

[48] Prior to 1 May 2011, subs (2) referred to “the Commission” as opposed to “the FMA”.

[49] Prior to 1 May 2011, subs (3) read “s 41(b)” instead of “s 41(1)(b)”.

[50] The remaining criminal penalty provisions are ss 59A and 60, which impose criminal liability for delivering a prospectus for registration that does not comply with various requirements and for various miscellaneous breaches of the Act, including breach of door-to-door sales requirements, trustee provisions and issuer accounting and documentation obligations.
[51] Section 59(1)(b). “Principal officer” is defined by s 2 as:

principal officer, in relation to a body corporate or other body, means—

(a) A director of the body; or

(b) A person in accordance with whose directions or instructions any or all of the directors of the body are accustomed to act; or

(c) In relation to any particular requirement of this Act, any person whose function it is, or who has undertaken, to ensure that that requirement is complied with by the body:

...

[52] Section 2A(2)(c) was inserted from 1 May 2011. Section 2A(3)(b) was repealed from 15 April 2004.

[53] District Registrar of Companies v Heenan (1997) 8 NZCLC 261,334 (DC); R v Baxter [1998] 3 NZLR 144 (CA); and Van Niewkoop v Registrar of Companies [2005] 1 NZLR 796 (HC).
[54] R v Rada Corp Ltd (No 2) [1990] 3 NZLR 453 (HC) at 477.
[55] Section 58(2) (advertisement) and (4) (prospectus).

[56] Section 58(1)(a) and (b).

[57] Section 58(3).
[58] Section 58(5).
[59] Section 2A(1)(c). See [38].

[60] The 1982 Act also inserted a new s 58 that applied to advertisements, and referred to distribution as opposed to issue. See [93].
[61] See [93]–[96].
[62] Section 2A(2)(b). See [38].
[63] Section 37A(1)(a). See [32].
[64] See [37].
[65] See [34].

[66] To the extent that ss 56 and 57 are relevant, they make the point clearer. The “civil liability event” is the distribution of an advertisement or a prospectus that includes an untrue statement: s 55B(a). Sections 56 and 57 just determine who is liable for that event. Section 56 is even headed “which persons are liable for misstatements”. Further, s 56 is drafted in similar terms: “a person is liable ... for the distribution of an advertisement or registered prospectus that includes an untrue statement if ... the person has signed the prospectus ...”

[67] Section 58(3) differs slightly from s 58(1), in respect of advertisements, as s 58(1) refers to “any untrue statement”. This distinction is likely a mistake, as prior to 1994, subss (1) and (2) (the relevant subsections) both referred to “any untrue statement”. Section 58 was amended in 1994 to make it clear that subs (3), now subss (2) and (4), established affirmative defences (as opposed to matters relevant to penalty). “Any” was retained in subs (1), but not subs (3). In any event, the distinction is immaterial for present purposes.
[68] See [51].
[69] See [52].
[70] Section 58(1)(b). See [34].
[71] See [26]–[32]. See also [48].

[72] This assumes that “distributed” must mean the same thing throughout the section, which we have held it must.

[73] Venning J also expressed this concern at [51] and [52] of his judgment that, under the Crown’s interpretation, there would be no limit on the number of offences committed.

[74] Susan Glazebrook “Filling the Gaps” in Rick Bigwood (ed) The Statute: Making and Meaning (LexisNexis, Wellington, 2004) 153.

[75] For prospectuses, see ss 34(1)(b), 37A(1)(b) and 43G(1)(c) (s 44(1) prior to 1 May 2011) of the Securities Act 1978. For investment statements, see ss 37A(1)(b), 43F(1)(a) (s 38F(1)(a) prior to 1 May 2011) of the Securities Act 1978 and reg 23 (reg 8 prior to 1 July 2010) of the Securities Regulations 2009. For advertisements, see s 38B(1)(a) and reg 23 (reg 8 prior to 1 July 2010).
[76] See [30].

[77] Section 34 is the only section that contains both “distribution” and the change of circumstances gloss.

[78] Section 3(4). See [39]. The current form of s 3(4) was inserted by the 1982 Act.
[79] Section 3(1)(b) and (c).
[80] Section 3(2).
[81] See [35].
[82] At [49].
[83] At [21]–[26].
[84] At [26].

[85] For example, s 57 provides that an expert is liable for untrue statements in a prospectus attributed to him or her and distributed with his or her consent, but has a defence where he or she withdraws consent before distribution, or after distribution but “before the securities were subscribed for” on notice to certain persons.
[86] See [36].
[87] For example, under s 33.
[88] Section 37A(1)(b).

[89] Section 329 of the Crimes Act 1961 provides that purely summary offences (ie punishable by three months’ imprisonment or less) cannot be included in an indictment.

[90] Re AIC Merchant Finances Ltd [1990] 2 NZLR 385 (CA) at 391–392 per Richardson J; at 397 per Casey J; at 401 per Doogue J.

[91] At 391.
[92] Unlike offers of equity securities via IPOs or one-off bond offers, for example.
[93] See also [24]–[25].

[94] Clause 38 provided an interpretation section for these provisions, similar to s 55. Clause 38 repeated s 56 of the Companies Act 1955.

[95] Clause 42 is the origin of both ss 59 and 60. The Statutes Revision Committee removed liability for offering securities or distributing prospectuses from cl 42, into a new cl 41B (now s 59). “Other offences” remained in cl 42 (now s 60).
[96] Companies Act 1955, ss 53 and 54.
[97] The term “issued” does not appear to have been defined in the Companies Act 1955.
[98] See [37].
[99] See [51].
[100] See [19]–[20].

[101] Parliamentary materials relating to the 1977 Bill do not discuss cls 8 or 12.

102. [102] Section 34 was not in force until it was substituted by s 14 of the 1982 Act, from 1 September 1983. See [30] for its current form.

[103] The change in number/placement in the Act resulted from the insertion of a new Part I dealing with the Securities Commission, which was not present in the first version of the Bill. Part II of the Act began with s 33 (formerly cl 7). The only amendments were cross-references.

[104] There is no commentary from the Committee on this point; the Committee report is simply the amended version of the Bill. There is also no relevant discussion in the parliamentary debates following the report.

[105] Per the second version of the Bill. Section 34, as enacted in 1978, referred to “section 43” in subs (a), and “section 44” in subs (b).

[106] Another relevant change from “issue” to “distribution” is that the Committee changed the offence of issuing a prospectus in contravention of the Act to distributing a prospectus in contravention of the Act. The Committee also removed that offence from cl 42, inserting a new cl 41B, which is the origin of s 59. See [81].

[107] The difference is that “issue” included “publish, circulate, and distribute”. Distribute obviously had to be removed from its own definition, therefore the definition of “distribute” read “publish, and circulate”.

[108] Those sections were not in force, however, until after their amendment or substitution by the 1982 Act.

[109] Section 54.
[110] See [93].
[111] See [24]–[25].
[112] Securities Commission Background Paper on Financial Advertising Control (1979).
[113] At [36] of his judgment.
[114] At [3.12].

[115] See [52]–[55].
[116] See [25].
[117] The changes took effect from 1 September 1983.

[118] Apart from the change to the structure of the section, in order to clarify the affirmative defences in 1994, and the introduction of continuing offences, this is also the modern version of s 58. See [34].
[119] Now s 58(1).
[120] Now s 58(3).

[121] And also the current definition, which was inserted when investment statements were introduced, by the 1996 Act. The current definition in s 2A refers to “a” person, rather than “any”, but otherwise repeats these phrases. See [38].
[122] Section 2.

123. [123] What became s 37A was drafted by the Statutes Revision Committee. There is no commentary from the Committee on this point; its report is simply the amended version of the Bill. There is brief mention of the provision during the second reading debate, the focus of which was the distinction between void and voidable, in ss 37 and 37A respectively. See (8 December 1982) 449 NZPD 5345–5346.

[124] Section 37A(3).
[125] Section 37A(1).
[126] The changes took effect from 15 December 1994.

[127] R v Rada Corp Ltd (No 2) [1990] 3 NZLR 453 (HC) at 478.
[128] See [26]–[28]. The changes took effect from 1 October 1997.

[129] Clause 4, which proposed to insert s 2A, was not discussed in the explanatory note, the Justice and Law Reform Committee’s report, or the parliamentary debates.

[130] The 1995 Bill was preceded by a Report of the Working Group on Improved Product and Investment Advisor Disclosure.
[131] See [37].
[132] The new definition also includes communication by sound recording.

[133] The definition provided that “distribute” includes –

(a) Make available, publish, and circulate; and

(b) Disseminate by letter, newspaper, broadcasting, television, cinematographic film, video, computer image, or any form of electronic or other means of communication.

[134] See [38], [49] and [96].
[135] Section 37A(1).
[136] See [97].

[137] The Securities Amendment Act 2001 made minor amendments to ss 56, 57 and 59, by inserting female pronouns in the alternative.

[138] Securities Markets and Institutions Bill 2001 (170-1) (explanatory note) at 3. Another key proposal is the implementation of a continuous disclosure regime, which dominated the Parliamentary debates.
[139] At 5.
[140] Securities Markets and Institutions Bill 2001 (170-2) (select committee report) at 18.

[141] Millar v Ministry of Transport [1986] 1 NZLR 660 (CA).
[142] At [57].
[143] See [74].

[144] See K Handley (ed) Spencer Bower, Turner and Handley on Actionable Misrepresentation (4th ed, Butterworths, London, 2000) at [105]–[106].