Judgment: Lombard Directors' appeal rejected

[Full judgment: CA1912012.pdf]

COURT OF APPEAL OF NEW ZEALAND

CA191/2012, CA194/2012, CA201/2012 AND CA204/2012

WILLIAM PATRICK JEFFRIES, MICHAEL HOWARD REEVES, DOUGLAS ARTHUR MONTROSE GRAHAM AND LAWRENCE ROLAND VALPY BRYANT v THE QUEEN

CA225/2012, CA226/2012, CA227/2012 AND CA228/2012

THE QUEEN v WILLIAM PATRICK JEFFRIES, MICHAEL HOWARD REEVES, DOUGLAS ARTHUR MONTROSE GRAHAM AND LAWRENCE ROLAND VALPY BRYANT

[2013] NZCA 188

CASE SUMMARY

This summary is provided to assist in the understanding of the Court’s judgment. It does not comprise part of the reasons for that judgment. The full judgment with reasons is the only authoritative document. The full text of the judgment and reasons can be found at Judicial Decisions of Public Interest

http://www.courtsofnz.govt.nz/from/decisions/judgments.html

1. In a judgment issued today the Court of Appeal has rejected an appeal against conviction by four former directors of Lombard Finance and Investments Ltd following the company’s financial collapse in early 2008.

2. The Hon William Jeffries, Mr Michael Reeves, Sir Douglas Graham and Mr Lawrence Bryant were convicted in the High Court on 24 February 2012 on four counts under section 58(3) of the Securities Act 1978 of making untrue statements in an amended prospectus issued by the company on 24 December 2007.

3. The Court of Appeal has upheld the findings in the High Court that the amended prospectus was untrue by omitting reference to:

• The sharp deterioration in the company’s cash position.
• The serious downward trend in the company’s cash position.
• The pattern of serious delays in the recovery of loan repayments. 2

• The significant discrepancies between the projected timing of loan repayments and their actual receipt.
• The extent of the directors’ concerns about those matters.

4. The High Court found that the directors honestly believed the statements in the amended prospectus were true without the omitted material but decided that the directors did not have any reasonable grounds for that belief. Those findings have also been upheld by the Court of Appeal on the basis that the directors were well aware of the omitted material and that it was critical to the company’s liquidity. The Court has found that the directors had serious concerns about the company’s liquidity but did not sufficiently convey to investors the vulnerable state the company was in.

5. In the High Court, the directors were sentenced to periods of community work and two (Sir Douglas Graham and Mr Bryant) were each ordered to pay $100,000 as reparation. The Solicitor-General appealed against those sentences on the ground that they were manifestly inadequate. The Solicitor-General contended that sentences of home detention were required to reflect the seriousness of the offending and for consistency with sentences in other cases. The Solicitor-General did not seek sentences of imprisonment.

6. The Court of Appeal has allowed the Solicitor-General’s appeal, finding that the sentences imposed in the High Court were manifestly inadequate. The sentences did not reflect the gravity of the offending, the number of investors adversely affected and the substantial amounts of money (some $10.4 million) invested in reliance on the amended prospectus. While accepting the High Court Judge’s finding that the directors’ conduct was properly described as a misjudgement, the Court has found that the material omitted from the amended prospectus was critical to Lombard’s liquidity. The amended prospectus had been issued at a time of major tightening of the financial markets that had already led to a string of corporate collapses in the finance sector.

7. The Court has also decided that the High Court Judge did not give sufficient weight to the sentencing purposes of denunciation, general deterrence and the need to promote confidence in the country’s financial markets.

8. The Court of Appeal has also agreed with the Solicitor-General that the total discounts of 40 per cent allowed in the High Court for Sir Douglas Graham and Mr Bryant for their offer to pay reparation and for remorse and good character were excessive. These should not have exceeded 25 per cent. A 10 per cent discount for Mr Jeffries on the ground of good character was more appropriate but the Court of Appeal did not interfere with the High Court’s assessment of 10 per cent. A discount of up to 15 per cent for mitigating factors was appropriate for Mr Reeves.

9. The Court concluded that starting points of imprisonment for two to two and a half years should have been adopted before applying any appropriate discounts for mitigating features. But since the Solicitor-General did not seek terms of imprisonment the proper sentence was a combination of home detention and community work. The orders for payment of reparation of $100,000 made against each of Sir Douglas Graham and Mr Bryant are to remain.

10. The Court has sought further reports on the addresses of the directors for home detention purposes and will issue a final judgment on the sentences to be imposed as soon as those reports are received.

ENDS

[Full judgment: CA1912012.pdf]

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