The Lombard appeal to the Supreme Court

July 4th, 2013 at 7:00 am by David Farrar

I’ve been sent a copy of the appeal by the Four to the Supreme Court – Lombard Appln Leave to Appeal SC 2 July 2013

I have no particular view on the findings of guilt in regard to the charges. The courts have determined guilt, and that is also one issue being appealed to the Supreme Court.

The issue of more interest is whether custodial sentences are appropriate, when the court has specifically said they accept there was no dishonesty involved. I’ve got no problem with white collar criminals getting custodial sentences when they have defrauded people. But is a custodial sentence appropriate when the court has accepted there was no dishonesty?

The Lombard case involved “honest misjudgments” as opposed to other cases of gross negligence, related lending etc.

It is appropriate directors are held liable for their governance of a company that fails. But are custodial sentences appropriate when there was no fraud or deliberate deception?

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16 Responses to “The Lombard appeal to the Supreme Court”

  1. tvb (4,421 comments) says:

    I assume Home Detention is being considered a custodial sentence hence the appeal. Yes it will raise some important points on the principles of sentencing.

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  2. slijmbal (1,236 comments) says:

    It would depend on the level of negligence involved I presume. No lawyer but I thought being criminally negligent can lead to criminal sentences. I would assume a parallel here.

    If they were asleep at the wheel or made very high risk decisions then I would have no problem with them being locked up – it’s OPM they are chucking away and lots of it.

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  3. peterwn (3,271 comments) says:

    Some law clerk (a bright young lawyer who works for the judges) will now have to dissect this, research applicable case law and indicate whether or not each aspect meets the criteria for leave to be granted.

    See:
    http://www.legislation.govt.nz/act/public/2003/0053/latest/DLM214074.html
    for the criteria for leave to appeal. It appears some points made meet the criteria.

    On a more general note, I have serious doubts about prison sentences for ‘white collar’ crims. I am not saying they should merely be given the wet bus ticket. I have in mind a sentence not involving prison but one that really bites the offender. It would have features such as home detention (which would need to be a penalty in its own right – not anciliary to a custodial sentence), limitations on where and type of dwelling the offender can live, limitations on contract, no right to vote, limitation as to money that can be received from trusts, etc, strict community work requirements, no overseas travel, no travel outside area or region, no driving licence, etc.

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  4. Judith (8,534 comments) says:

    No, it is not fair.
    I’ve seen statements where people think Sir Doug Graham deserves a custodial sentence because of his part in the TOW Tribunal. Such is the state of justice in NZ.

    There was not malice, or dishonesty involved.
    I know for a fact that Sir Doug and his family also lost a great deal of money – he made no moves to protect his own interests, which also suggests he did not believe the company would collapse.

    Theses are old men. What purpose does a custodial sentence serve? They are hardly a danger to society, they are not going to be setting up another finance company.

    The previous sentence was for community service (there is much these experienced men could offer to the community) and large fines (at least returning something). Now we have a useless sentence of home detention which has no positive benefit whatsoever- sure it doesn’t look good on their record – but its not like we don’t all know their names, and/or that they are going to be applying for work in the future. Home detention, whilst not as expensive as imprisonment still costs the country quite a substantial amount.

    If convicted today – the law has changed and they could not receive a custodial sentence.

    I am right behind their second appeal – I wish then best of luck.

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  5. Alfred (52 comments) says:

    Having read the judgements, the Lombard case is vastly different from other collapsed finance cases, principally as David has identified – there was not dishonesty involved. It’s a bit tough when 64 other finance companies all collapsed as investor panic set in alongside the GFC.

    It’s also clear that these directors did not enrich themselves, and lost a great deal of money themselves. There were no posches, multi-million dollar mansions, swanky million dollar plus launches tied up in Westhaven, lavish spend-ups like the Bridgecorp directors or dodgy dealings like in the pending Hanover case.

    Sadly, as a result of the incompetence of the Securities Commission and its boss Jane Diplock, the new FMA “had” to be seen to be doing something and the best way to achieve that is target well known directors. That approach is sure to get the media attention, generate the perception that “they’re” getting the “rich” white directors and, to a certain extent, appease the masses (you know the whinging mum and dad investors who never read a prospectus).

    This is a sad tale and should not be compared to other finance cases before the courts. Anyone who actually reads the claims of these directors will, or should, be able to see that… but that’s not going to stop the ignorant crying for blood.

    New Zealand needs to grow up.

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  6. joana (1,983 comments) says:

    White collar crims are NZ’s ultimate crims and almost our most protected species..Few see the inside of a jail cell even though they usually wreck multiple lives..Those who do get a light sentence used to undertake it at golf course type prisons like Ohura which I think is now closed..Some do few months at minumin security prisons like Rolleston..A friend who is a prison guard there says they never admit they have done anything wrong and spend their whole time in prison writing letters to all and sundry including United nations officials trying to get themselves exonerated.

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  7. wreck1080 (3,912 comments) says:

    I think they were hard done by — stuck between a rock and a hard place.

    If they had have disclosed the financial position they would have failed immediately thus causing large losses to existing investors.

    So they decided to ‘trade’ their way out of trouble like businesses do all the time, sometimes succeeding and sometimes not.

    I find it curious how the judge said no fraud or dishonesty is involved yet they are found guilty none the less.

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  8. Simon (723 comments) says:

    There are a number of provsions for jail time in Companies Act for director actions that don’t involve dishonesty or fraud.

    Fuck Lord Montrose he can do jail time in this case as a lot of creditors put money in because Montrose was fronting the company. Montrose was a director and a promoter. This isnt just about the usual half arsed Tory governance.

    The “I am just another retard Tory” defence didnt work this time.

    These creditors werent normal trade creditors either. Lord Montrose because who he was and the curcumstaces of the losses can do jail time making number plates with the Black Power.

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  9. tvb (4,421 comments) says:

    The Lombard case does raise some important issues regarding “celebrity” Directors who really do no know the business they are Directors for. No doubt Sir Douglas Graham used his knighthood as a way of enhancing his standing for this business. It is the use of his knighthood that tells me he should lose it once the Appeal process is concluded.

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  10. Auberon (873 comments) says:

    tvb, the only problem with that line is that it flies in the face of testimony given by the chair of the Cullen fund on what a knowledgable and thorough deputy chair Sir Douglas was of that much bigger investment entity. The presumption that because he was a politician he didn’t know his way round a balance sheet, or the governance role of directors, is patently incorrect – and was never challenged in court by the Crown. It’s just a stupid assumption by people with childish biases.

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  11. flipper (4,060 comments) says:

    Peterwn says….,
    ” …. I have in mind a sentence not involving prison but one that really bites the offender. It would have features such as home detention (which would need to be a penalty in its own right – not anciliary to a custodial sentence), limitations on where and type of dwelling the offender can live, limitations on contract, no right to vote, limitation as to money that can be received from trusts, etc, strict community work requirements, no overseas travel, no travel outside area or region, no driving licence, etc. ”

    Rather too sweeping Peterwn, and far more severe in real terms than a sentence of, say, 8 to 10 years for a bank robber who would be quite at home in HM’s Hotel. Moreover, for how long?

    If you advocate a basket of sanctions, from which one or more could be selected by a judge, that might be appropriate, the suggestion you make would be very useful. . But you have missed a major item – reparations. Bankruptcy would bring about some of the options included in your “basket”, but that is limited to three years, with a couple more on a list, I think/believe.
    …….
    Someone referred to celebrity directors.

    We are all aware of the trap into which a once much admired newsreader (RB) fell. He was suckered, but it is doubtful whether any professional would have then advised him NOT to the venture there. It is difficult for anyone not full aware of commercial realities and an intimate knowledge of the company’s business. I know of one individual (now deceased) who accepted an invitation to chair a high profile public company. I was present at a luncheon when that person (a Knight, and a retired UK Sea Lord) sought advice on his responsibilities from a chartered accountant. He was given a hand book, but also told that he should never accept less than full and frank information on every issue. I concluded that, by and large, senior accountants may be better counsellors on directors’ responsibilities than lawyers.

    I guess the lesson from all of this is that “outside” directors are valuable. But they should represent large, or groups, of shareholders, rather than the “old boy” network.

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  12. Akld Commercial Lawyer (165 comments) says:

    I cannot comment on the Lombard case as it is still before the Courts. However, the wider issue is still relevant because of provisions in the Companies and Limited Partnerships Amendment Bill which is being proceeded under urgency. The Bill contains provisions for the ‘criminalisation’ of breaches of certain directors’ duties.

    The macro issue is that if this law change does not target (accurately) dishonesty / dishonest practices then it will act as a disincentive for good people to put their names forward to be directors. Looking overseas, it is clear that exposure to criminal liability can discourage would-be directors. The strong link between good governance and productivity makes it imperative not to deter competent & honest people from board roles. In particular, economic recovery in NZ needs an SME sector that gets good governance inputs from experienced / capable directors.

    Also, the Oz experience seems to be that, if you make the penalties such that (potentially) a footfault can ruin a career, then it pushes directors to throw in the towel too early because they are advised that a struggle to bring a company back from the brink might expose them to personal liability. By contrast, the US regime has addressed these issues (more than 70 years ago) with a regime that gives a struggling company and its directors a short window of time, free of demands from creditors, to decide whether it will survive or not and has a greater focus on allowing those capable of being saved to do so. For those that can’t be saved, the emphasis in the US regime is on getting the assets back into circulation as quickly as possible – not on punishment unless there was dishonesty. This is simply a realisation that, if a company fails, everyone loses – shareholders, suppliers, employees etc.

    By contrast, in NZ, I suggest that except at the Bridgecorp or Capital & Merchant end of the spectrum, there is too much emphasis (by the media and others) on wanting to see a good public flogging. As the FMA has tried to point out, repeatedly, absent fraud, in many cases the reasons for the finance company failures was pretty simple and there are valuable lessons being lost in the media noise about witch hunts.

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  13. GPT1 (2,122 comments) says:

    In order for a Home Detention sentence to be considered the end point must be a term of imprisonment of two years or under. If under two years the Judge must consider whether Home Detention is a suitable sentence taking into account various factors including seriousness of the offending, risk to community, opportunities for rehabilitation etc. The general formula is for every two months of prison there is one month of Home D (a Home D sentence is served in full but for sentences under two years the statutory release date is half).

    To your point, given the factual finding by the Trial Judge that there was no deliberate dishonesty involved I was surprised by the increase in the sentences. Given the dramatic change in that outcome I would like to see an appeal on, at least, sentence.

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  14. joana (1,983 comments) says:

    Is everyone going to be allowed to go out walking now when they are on Home D? If not , why not? Graham must be very accustomed to special treatment if he even think it is appropriate to make this ridiculous and insulting request.

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  15. peterwn (3,271 comments) says:

    Well, Flipper, I did say the sentence had to bite- so if it is bites harder than being prison librarian for several years, then so be it. I envisage the sentence would be longer than a custodial sentence, but with a gradual easing of conditions. It would be like bankrupcy, but probably for longer than three years. Thoughts about reparation did cross my mind, but I did not want to complicate the issue. An idea I have is that 50% of money received from trusts, bequests or gifts be excised and paid over as reparation, or to put it another way, a trust can only make a grant or distribution to the offender if it pays over a like amount in reparation.

    I would prefer it if these offenders swapped their Remuera mansions for a small holding in Southland and be obliged to grow their own vegetables, and perhaps provide and look after a pony for ‘Riding for Disabled’.

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  16. joana (1,983 comments) says:

    A small holding in Southland.?? How patronising.

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