GARRY RAYMOND LAWRENCE V REGISTRAR OF COMPANIES CA CA115/03

GARRY RAYMOND LAWRENCE V REGISTRAR OF COMPANIES CA CA115/03 12 February 2004IN THE COURT OF APPEAL OF NEW ZEALAND CA115/03 GARRY RAYMOND LAWRENCEvREGISTRAR OF COMPANIESHearing: 25 August 2003 Coram: Gault P Blanchard J McGrath J Appearances: A J McKenzie for the Appellant B H Dickey and E T Fletcher for the Respondent Judgment: 12 February 2004JUDGMENT OF THE COURT DELIVERED BY McGRATH J[1] Mr Lawrence appeals on a question of law, with the leave of the High Court granted under s144 of the Summary Proceedings Act 1957, against the judgment of Morris J dismissing his appeal against conviction by the District Court of offences under the Securities Act 1978 (the Act). The appellant was convicted on two counts of making offers of a security to the public and two counts of allotting a security to the public, without having issued a prospectus, contrary to s59 of the Act. The sole issue raised by the appeal is whether Morris J was correct in holding that for an offer of securities to be made to a person who "can properly be regarded as selected otherwise than as a member of the public" under s3(2)(a)(iii) of the Act the offeree must have, or have the capacity to obtain, information concerning the proposed investment sufficient to be able to make an informed decision in relation to the offer.Morris J held that unless that requirement was met the offer concerned was not excluded from being an offer of securities to the public by s3(2)(a)(iii) of the Act.Facts[2] Between 1 February and 31 May 1998 Canterbury Asset Management Limited, a company of which Mr Lawrence was the sole director and shareholder and in which he acted at all relevant times in the capacity of manager, offered various securities for subscription to investors. They related first to a residential subdivision, known as the Marlborough Ridge II Property Development, which was the first stage of a property development in the vicinity of Blenheim which was to include hotel and conference facilities. The second offer concerned an inner city apartment complex development in Auckland, known as the Metro City ApartmentsLimited Development. [3] In neither case was a prospectus, authorised advertisement or investment statement prepared in relation to the securities to be offered, of the kind provided for in ss33 and 37 of the Act. The offers of securities were each made in an information memorandum and were expressed in terms which were said to exclude them from being extended to the public. [4] Canterbury Asset Management allocated securities in relation to investments of $2,800,000 in the Marlborough Ridge II development and $3,614,069 in the Metro City Apartment development. The relevant allocations were made between 1 February and 31 May 1998. Overall there were around 106 investors in the two projects. [5] Both developments encountered serious financial difficulties and by the time of the District Court trial in February 2002 it was anticipated that the investors might lose the total amounts they had subscribed. [6] It was acknowledged by the Registrar of Companies in the District Court that two other persons were involved in the two developments, both of whom left New Zealand before an investigation into the offers of allotments by the Registrar ofCompanies had been completed. It was also accepted that those two persons, rather than the appellant, were responsible for the financial collapse of the two investments and that the appellant had himself suffered financial losses as a result of their activities. [7] Evidence was given by five persons, who had invested in one or both developments, that they had been introduced to Canterbury Asset Management by a Mr Condliffe. These persons had been investment clients of a bank and during that time had developed an association with Mr Condliffe while he was employed by the bank concerned. When he left its employment and became a private investment advisor, they became his own clients. Later he was employed by Canterbury Asset Management. It was agreed that the five witnesses had subscribed for their investments in an individual capacity and were not professional investors by occupation. While it is clear that many investors in the two developments were not introduced by Mr Condliffe the focus of the judgment in the High Court, as in the District Court, was on the position of his clients. Apart from being his clients while he was with the bank and thereafter, including a period when he was the company's employee, none of these investors had any association with Canterbury Asset Management.The charges[8] The appellant faced four charges under s59 of the Act. In respect of each of the two investment proposals the appellant was charged with being a principal officer of an issuer which had, first, made an offer of a security to the public in contravention of the Act and, secondly, allocated a security in contravention of the Act. In those circumstances, under s59(1), in addition to the issuer, and in some circumstances others, every person who is a principal officer of the issuer of the security at the time of the contravention commits an offence under s59. While the section provides in certain circumstances for statutory defences of reasonable excuse, and absence of knowledge and consent, no question arises in relation to them in this appeal.[9] The case for the respondent Registrar of Companies was that the appellant had made an offer of a security to the public contravening s33 of the Act, which precludes such offers unless made in or accompanied by a registered prospectus or authorised advertisement. The respondent also said that Canterbury Asset Management had allotted a security in respect of each investment, in contravention of ss37(1) and 37A(1) of the Act. These preclude allotment of a security offered to the public for subscription in the absence of a registered prospectus and provision of a stipulated statement of information concerning the security. [10] The appellant's defence to all charges in the District Court was that the issuer had not made an offer of a security to any person who was a member of the public: the offers made, being to selected individuals, were of a private character which were not caught by the Act's provisions.Statutory direction as to construction[11] Central to the characterisation of the relevant offers of securities in this case is the Act's own direction concerning the interpretation of references in it to offers of securities to the public. Section 3, so far as is relevant to the appeal, provides: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: (i) Relatives or close business associates of the issuer: (ii) Persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money:(iii) Any other person who in all the circumstances can properly be regarded as having been selected otherwise than as a member of the public. (b) An invitation to a person to enter into a bona fide underwriting or sub- underwriting agreement with respect to an offer of securities: (c) A take-over offer within the meaning of Part I of the Companies Amendment Act 1963: (d) An offer of securities made pursuant to any takeovers code that is in force under section 28 of the Takeovers Act 1993. (3) A person shall not be precluded from being regarded as a member of the public in regard to any offer of securities by reason only that he is a purchaser of goods from, or an employee or client of, or a holder of securities previously issued by, the issuer or any promoter of the securities. (5) Proof of an offer of securities to one person selected as a member of the public shall be prima facie evidence of an offer of securities to the public.District Court judgment[12] The initial hearing in the District Court before Judge Cadenhead was concerned with whether the appellant was liable in respect of the charges. The sole question was whether the two sets of securities had been offered to the public. In his reserved judgment on liability the Judge discussed s3, referring to principles drawn from this Court's decision in Securities Commission v Kiwi Cooperative Dairies Ltd[1995] 3 NZLR 26. The dispositive part of the District Court's judgment, however, focuses on the unchallenged evidence in the form of statements from the five witnesses who were introduced to Canterbury Asset Management and the investment opportunities by Mr Condliffe, and who thereafter accepted offers to invest private funds in one or both of the Marlborough Ridge II development or the Metro City Apartments development. The Judge found that these witnesses were members of the public under the Act. The essence of his reasoning was:None of these people had an intimate knowledge of the respective investments, the securities provided, or the financial details necessary for them to make an informed decision as to whether they should invest in these investments. These people were members of the public, in terms of the Securities Act 1978. None of these people fall within the exemptions contained in s3(2)(a)(i), (ii) and (iii) of the Act. They were not relatives or close business associates of the issuer. They were not people whose principal business was the investment of money or who habitually invested money. Nor can it be said that in all the circumstances they had been selected otherwise than as a member of the public. They had been introduced to the investments by Condliffe, an employee of Canterbury Asset Management: that company was promoting these investments. The information memorandum was prepared by that company. The informationmemorandum purpose, averments and the terms of the application offer cannot hurdle the reality of the situation: the offerees were not in the restricted class of person contemplated by the Legislature. These were investors in relatively humble financial circumstances who had no intimate knowledge of the financial worth of the security offered. These people fell within s3(1)(a) of the Act.[13] Accordingly, the sole defence having failed, the Judge convicted the appellant on each of the charges. Subsequently he imposed fines totalling $10,000 together with court costs.The High Court judgments[14] The appellant appealed to the High Court against his convictions on two grounds. The first was that the respondent had failed to prove any instance of an offer or allotment within the particular timeframes stated in the informations. This contention was rejected by Morris J, and no issue arises on appeal to this Court on that aspect of his judgment. [15] The principal ground of appeal to the High Court was that the investors concerned were in a category that is excluded from being members of the public by s3(2)(a)(iii) of the Act, so that the offer of securities to them did not contravene the requirements of ss33, 37 and 37A. In addressing this ground Morris J first considered the scope of another group excluded from the public by s3, being "close business associates of the issuer". Under s3(2)(a)(i) an offer of securities solely to such persons is not an offer "to the public". [16] The Judge observed that in Kiwi Cooperative Dairies this Court had held that there had to be a degree of intimacy or business friendship in the relationship between issuer and offeree that was sufficient to overcome any inequality that might otherwise be present in the relationship. To be "close business associates" persons had to be sufficiently closely connected on a personal basis with the issuer that it could be assumed that they had either sufficient knowledge of the issuer's affairs or the means of readily obtaining it. According to Morris J the principle that possession of sufficient information to make an informed decision was necessary for the exclusion under s3(2)(a)(i) to apply could also be seen as implicit in the category ofprofessional investors which is excluded by s3(2)(a)(ii). He also concluded that the principle should also be applied to clarify the scope of s3(2)(a)(iii):The exemption will include all those persons who can safely be presumed to be in possession of the relevant information, or the means of obtaining that knowledge, whether through having some connection to the issuer, other than the relationships already covered in ss3(2)(a)(i), or some special occupation or interest. The investors here did have a "connection" to the issuer, or rather, the issuer's employee, Mr Condliffe. They were Mr Condliffe's original clients from the time when he was working for the Bank of New Zealand. However, it can hardly be said that, simply by virtue of that particular connection, they were in possession of, or had the means of obtaining, the information relevant to their investment. If anything, it was just the opposite as they were likely to have placed their complete reliance in their investment adviser.[17] Morris J did not accept that there was any difficulty in reconciling his view of the basis on which under s3(2)(a)(iii) a person could be regarded as having been selected otherwise than as a member of the public, with the provision in s3(1)(a) that a reference to an offer of securities to the public should be construed as including an offer "to any section of the public, however selected". He noted that Tipping J had reconciled what he had seen as an apparent contradiction between the concepts inRobert Jones Investments Ltd v Gardner (1988) 4 NZCLC 64,412, 64,418. Tipping J had said that a means of reconciliation might be that while s3(1)(a) looks at the concept of a section of the public, however selected, s3(2)(a)(iii) looks at persons who have been selected as individuals, rather than as a section of the public. Morris J said this was consistent with his conclusion that to be in the category of persons selected "otherwise than as a member of the public":what is actually needed . is a specific type of connection which would put investors in a position where they would be able to obtain information relevant to the investments that the ordinary members of the public would not be able to get. (para [30]).[18] Applying this approach to s3(2)(a)(iii) to the facts, Morris J said that the investors in this case had no intimate knowledge of the respective investments they were offered, the securities provided or the financial details necessary for them to make an informed decision on investment in the two developments. Although in a loose sense they were connected to the issuer through their relationship with Mr Condliffe they lacked any means of obtaining that information. They were mostly retired small investors looking to secure their future by investment of accumulatedfunds. Accordingly he held that the District Court had correctly decided that the offerees were members of the public under s3 and dismissed the appeal: Lawrence v Registrar of Companies A153/02 Auckland, 5 December 2002. [19] On 4 March 2003 Randerson J granted the appellant leave to appeal from the decision of Morris J under s144 of the Summary Proceedings Act 1957. Randerson J said that he saw as an important question of law whether Morris J was right in holding that the test under s3(2)(a)(iii) was whether the persons approached with the relevant offer were able to obtain information relevant to the proposed investment that ordinary members of the public could not obtain. Whether s3(1)(a) was in conflict with the approach of Morris J to s3(2)(a)(iii) was an incidental question itself of importance in civil and criminal cases coming before the Courts under the Act. He accordingly gave leave to appeal.Submissions[20] In this Court Mr McKenzie, for the appellant, submitted that on the proper interpretation of s3(2)(a)(iii) the five witnesses who had given evidence of receipt and acceptance of offers and of allotment to them of securities were excluded from the public under s3(2)(a)(iii), having been selected other than as members of the public. Mr McKenzie argued that Morris J had wrongly read the provision as requiring that offerees have access to information before it could be said that they or any of them had been "selected otherwise than as a member of the public". His approach had imposed further requirements as to characterisation for selection than the statutory language had expressed. Counsel said that, correctly interpreted, s3(2)(a)(iii) had created a stand alone category of persons who were not the public. Selected persons covered by s3(2)(a)(iii) did not have to be linked conceptually with those covered by subparagraphs (i) and (ii) of s3(2)(a). He also argued that there was a contradiction between s3(2)(a)(iii) and s3(1)(a) which was identified in Robert Jones Investments Ltd v Gardner (1988) 4 NZCLC 64,412 and which supported his approach. Those who had been approached in this case, including the five who gave statements in evidence, were individuals who had been selected not by reason of being members of the public but as individuals.[21] Mr Dickey, senior counsel for the respondent, supported the reasoning of Morris J. He argued that a purposive approach was required to the interpretation of ss3(1)(a) and 3(2)(a)(iii), citing this Court's decisions in Kiwi Cooperative Dairiesand Re AIC Merchant Finance Ltd [1990] 2 NZLR 385, 391 in support. In view of the statutory purpose, Mr Dickey submitted, it was appropriate and necessary for the courts to construe widely the provisions in s3(1)(a) as to what was included in references of "an offer of securities to the public" and to construe narrowly exclusionary provisions in s3(2)(a)(iii). For that provision to apply not only must all persons to whom the offer was made have been selected "truly as individuals," but as Morris J had put it, there also needed to be "a specific type of connection which would put investors in a position where they would be able to obtain information relevant to the investments that ordinary members of the public would not be able to get". [22] Mr Dickey summed up his argument on the interpretation of s3 in his written submissions by saying:Section 3(2)(a)(iii) was not intended to provide a broad class of persons to whom an offer can be made without having to comply with Part II of the Act. It applies to persons who, from time to time, are not requiring of the protection of a prospectus, authorised advertisement and investment statement either because they are already in possession of similar knowledge, or have the means to readily obtain it without recourse to such documents.He also pointed out that s3(3) makes it plain that it was not decisive of selection of persons as individuals that they were existing clients of an issuer. [23] Turning to the facts, Mr Dickey argued that the appellant could point to no greater connection between the issuer and offerees than the client connection through its employee Mr Condliffe. None of those investors had the means of accessing information that would put them in the position of being informed investors. He pointed out that as well as the persons introduced through Mr Condliffe, securities had been allotted by Canterbury Asset Management to a large number of its own clients. There was less detailed evidence about their circumstances and the appellant had not discharged its duty to show that all those in the group receiving offers were other than members of the public.Discussion[24] We start with the submission on behalf of the respondent that, consistent with the statutory protective purpose of the Act, the Court should construe the direction as to what is included in the phrase "offer of securities to the public" by s3(1) widely, and the direction as to what is excluded by s3(2) narrowly. The Act's protective purpose was stated in the judgment of a Full Court of this Court in Kiwi Cooperative Dairies at p31 in the following terms:The Securities Commission argues, and counsel for Kiwi accepts, that the principal purpose of the Securities Act is to place controls upon the issuance of securities to the public and that those controls are for the protection of the public. In Re AIC Merchant Finance Ltd [1990] 2 NZLR 385 at p391 Richardson J was of that view: "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." And at p392: "It is perhaps true to say that the premise underlying the Securities Act, as with much commercial law, is that the best protection of the public lies in full disclosure of the company's affairs and of the security it is offering. That then allows the investor to make an informed investment decision, which in turn facilitates the functioning of financial markets. It is, I think, for reasons of that kind that the Act places such emphasis on clear and accurate disclosure."[25] In Kiwi Cooperative Dairies this Court was concerned with the meaning of "close business associates" in s3(2)(a)(i). The Court accepted that the Act's protective purpose was important and to be kept in mind in interpreting the term. It was, however, unnecessary in ascertaining the legislative purpose to go beyond the meaning of the words used. [26] The issue of construction in the present appeal concerns, in particular, s3(2)(a)(iii) which provides for a supplementary exclusionary category of persons, to whom offers of securities are made and who have been "selected otherwise than as a member of the public". In ascertaining the limits of the broad language used ins3(2)(a)(iii) it is basic that the Act's scheme regulates only offers and allotments made to the public. By drawing a distinction between public offers and allotments of securities, and those where the targets are outside of the public, Parliament has implicitly recognised that there are costs associated with its regime of mandatory disclosure which, in circumstances where the transactions are not with the public, will outweigh the benefits of the protection the regime gives to investors. [27] For the purposes of deciding this appeal it is sufficient to say that the legislative policy which confines the protection of the mandatory disclosure regime to public offers assumes that where an issuer wishes to offer securities to persons with whom the issuer has a family, or a near and intimate business relationship, the need for protection of the investor is outweighed by the costs associated with giving it. The policy in relation to s3(2)(a)(i) in particular reflects also the circumstances of family companies as vehicles for conduct of business in New Zealand and the perceived desirability of facilitating their access to fresh capital from family members at minimal cost. It also of course reflects legislative assumptions as to the offerees' knowledge or the means of obtaining knowledge concerning their relatives' affairs and the likely sufficiency of social restraints in the familial situation in which securities are offered. [28] Likewise, where the circumstances of target investors are such that they are assumed to be capable of looking after their own interests in obtaining information concerning investment proposals put to them, the legislative policy underlying s3(2)(a)(ii) is that the costs of protection outweigh the benefits to that class. Such persons are excluded from the protected public under what, perhaps loosely, is sometimes called the public-private distinction. There is an interesting discussion of the nature of the costs involved and the validity of the policy perception that there is less need for protection for securities dealings in a private context in Loke AFH "Working out the private offer exemption: From concept to safe harbours" (2001) 13 AJCL 39. [29] As a statutory direction as to construction of "offer of securities to the public", s3 supplements what would otherwise be left to the Courts to decide entirely as a matter of impression on the particular facts. This was recognised in the courseof the Act's passage through the House of Representatives. At the second reading stage of consideration of the Securities Advertising Bill the Chairman of the Statutes Revision Committee reported on changes that had been made by the Select Committee to clause 3 as follows:Clause 3, which defines what constitutes the public for the purposes of the Bill, has undergone substantial rewriting to give more certainty, in view of the wide application of the Bill, to precisely what is or is not on offer to the public. This is not to say that all the vagueness of the concept of a public offer has been removed, but it does represent a substantial clarification of this part of the law. The concept of a public offer has been rewritten having regard to who requires the protection of disclosure, and thus clause 3(2) now excludes from that concept, offers, for example, to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money: (25 August 1978) 420 NZPD 2912-2913.[30] The text of s3 therefore reflects both the policy of confining the scope of regulation and the aim of giving some certainty in particular cases as to what is or is not an offer to the public. Each subsection has the purpose of giving clarity to a particular aspect of what is an offer of securities to the public. Section 3(1)(a) provides that an offer to any section of the public however selected is an offer to the public. This makes plain that the offer does not have to be one that any member of the public can accept for it to be a public offer. Where offers are made to persons selected because of common characteristics that will not exclude them from being public in nature if they are made to a section of the public. Similarly s3(1)(c) provides that where a person has a prior connection with an issuer which arose from an advertisement that was likely to lead the public to seek information or advice about investment opportunities, a subsequent offer to such a person will be to the public. And s3(3) provides that certain relationships between issuers and offerees do not preclude offers made to them from being to members of the public. Importantly, it makes plain that something more than the existence of a prior investment relationship with offerees is required before an offeree can be regarded as being selected on a basis putting him or her outside of the public zone regulated by the Act. [31] Section 3(2)(a)(i) implements the policy, already described, of excluding from regulation offers to persons to whom the issuer is related, as well as "close business associates". The term "relative" in this provision is precisely defined having the same meaning as in the Income Tax Act 1994. It includes certainrelatively distant relationships (see Part O sOB(1)). "Close business associates", as already indicated, was construed in Kiwi Cooperative Dairies in a way that required a degree of intimacy and business friendship. In each case the legislature saw such persons as protected by the inherent restraints on an issuer of a social and business kind, or assumed such persons would, to the extent they wished, generally have or be able to obtain information relevant to the securities in which they were invited to invest (see Kiwi Cooperative Dairies at p32). [32] Those excluded from the public under s3(2)(a)(ii), who may loosely be called professional investors, may of course have no close connection with the issuer and indeed may not have an existing relationship or connection at all. They are, rather, excluded because they are presumed by the legislature to be a category of persons able to protect themselves, because of their expertise. They are treated by the Act as not being part of the public who need protection and excluded accordingly. [33] In considering the characteristics of other persons who are "selected otherwise than as a member of the public" to whom offers of securities are excluded from being offers to the public under s3(2)(a)(iii), the Act's policy of protecting the public in their investment decisions does not call for a narrow, nor for that matter a wide approach to construction. The general language of this residual provision is simply to be construed in its context. The immediate context is the two previous subparagraphs which implement the statutory policy of excluding from the requirements of disclosure offers made to those who have the specified family connections, or a business relationship which has a degree of intimacy or business friendship or who are professional investors. Read in this light there are plainly limits to the scope of s3(2)(a)(iii). A person can properly be regarded as having been selected otherwise than as a member of the public if he or she has a relationship with the issuer, such as a close friendship, of a kind which would generally give rise to restraints akin to those on which the policy of exclusion in s3(2)(a)(i) is premised. In any particular relationship it will be indicative of exclusion if those selected can objectively be seen to be in a category of persons able to protect themselves either by being able to require the issuer to provide them with relevant information or because of general sophistication in investment matters. By definition a relationship coveredby s3(2)(a)(iii) will be different in some respect to those specified in the previous subparagraphs, but it must be analogous to one of them. [34] The generality of s3(2)(a)(iii) must however be read subject to s3(3) so that relationships of employment by and being a holder of existing securities of the issuer cannot of themselves, without more, give rise to exclusion under its terms. [35] Subject to this specific guidance the question of who is in the category of persons protected because they are part of the public remains a question of fact to be determined as a matter of impression having regard to all the relevant circumstances rather than by reference to fixed criteria. The number of persons offered securities will not normally be of great significance in itself. While it may be easier, if the number of persons approached is small, to show there is sufficient connection to make the offer a private one, that is not to say that where there are few offerees the group is less likely to be a section of the public. Nor is an evaluation of investors on their individual merits likely to be of particular assistance. The test is an objective one. This Court's decision in Society of Lloyd's and Oxford Members' Agency v Hyslop [1993] 3 NZLR 135 does not suggest otherwise. It rather confirms that the reason for which an offer is made may be one of the circumstances which indicates whether there is a relationship between the parties or other situation in which the exclusionary provisions of s3(2)(a)(iii) apply.[36] In the present case we can confine our consideration to the persons whose circumstances were addressed by the Courts below, although we do not overlook the fact that a much larger group were offered and allotted securities in respect of the investments concerned. Each of the five investors was a client of Mr Condliffe, introduced by him to Canterbury Asset Management. Selection on that account alone cannot qualify as being otherwise than as a member of the public because, while it might be arguable that the investor was not a client of Canterbury Asset Management, the connection is so akin to such a relationship as to be affected by the principle underlying s3(3). A business investment relationship of an issuer with offerees which does not amount to that of a close business associate cannot without more give rise to the characteristics that exclude the offerees from the public.[37] The additional feature that Mr McKenzie points to is that, he says, in each case a judgment was made that the investment was appropriate for the investor. This is tantamount to saying that because the individuals were selected on the basis of their individual characteristics rather than as a generic group the offers were not made to the public. That proposition is incompatible with the purpose of s3. The judgment referred to was made in each case by Mr Condliffe, or perhaps by other persons who were acting on behalf of Canterbury Asset Management, but that does not provide a basis for properly regarding investors as selected for reasons which put them outside of the public who it is the Act's purpose to protect. That is because the basis of selection does not impose restraints on the abuse akin to those for offers to relatives. Nor are the unsophisticated persons who are the focus of this appeal in a category of investors who can be regarded as being able to look after themselves. They are rather persons who have all the characteristics of those who are vulnerable to misguided investments because of their inexperience and lack of ability to obtain relevant information. To treat them as being outside of the public would be completely contrary to the scheme of protection of the Act. [38] For these reasons the offer of securities made to each of those who gave evidence in the District Court is a clear instance of an offer of securities to the public. There is no need to consider the position of others concerning whom there was no evidence called. Accordingly the contention that the issuer did not offer securities in the two investments to the public fails. Our reasons for so deciding are similar to those of Morris J although he focussed more on subparagraph (ii) than on (i) in considering the scope of s3(2)(a)(iii). We do not read the exception in s3(2)(a)(iii) as concerned more with situations akin to those of close business associates than relatives. There are wider connotations to s3(2)(a)(i) which indicate that social bonds may provide adequate protection in some circumstances. [39] The appeal against all convictions is accordingly dismissed. There will be no order for costs on the appeal.Solicitors: Crown Solicitor, Auckland