R v BUBLITZ [2019] NZHC 222

R v BUBLITZ [2019] NZHC 222 [21 February 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECRI-2014-004-2293[2019] NZHC 222BETWEEN THE QUEENAND PAUL BUBLITZ, BRUCE McKAY andRICHARD BLACKWOODHearing: 13-17, 20-23, 27-28 August, 3-5 September 2018Appearances: DG Johnstone, SS McMullan and S Closey for the CrownSJ Lance, SNB Wimsett and F Iggulden for Defendant, P BublitzGNE Bradford and S Withers for Defendant, B McKayS Kilian and R McCausland for Defendant, R BlackwoodVerdicts: 5 February 2019Reasons: 21 February 2019VERDICTS AND REASONS OF TOOGOOD J[Judge-alone trial under Part 4, Subpart 1 of the Criminal Procedure Act 2011]This judgment was delivered by me on 21 February 2019 at 3.00 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarTable of ContentsVERDICTS AND CONSEQUENTIAL ORDERS - Delivered orally at 10am on5 February 2019 ........................................................................................................ [1]Addendum ............................................................................................................... [10]REASONS FOR VERDICTS: Delivered in writing on 21 February 2019 ........... [11]Introduction ............................................................................................................. [11]The Crown's case .................................................................................................... [12]The consequences of the alleged offending ............................................................ [40]Viaduct losses ...................................................................................................... [41]Mutual losses ....................................................................................................... [43]The respective roles of the defendants .................................................................... [45]The regulatory framework....................................................................................... [50]The Priority/Viaduct trust deed ........................................................................... [53]The New Zealand Accounting Standards ............................................................ [56]NZ IAS 24 ........................................................................................................... [57]NZ IAS 27 ........................................................................................................... [60]The Mutual Crown guarantees ................................................................................ [63]The conduct of the trial ........................................................................................... [68]The first trial............................................................................................................ [71]This trial – evidential issues .................................................................................... [73]Mr Nicholaas Wevers .......................................................................................... [78]The approach to setting out the reasons for the verdicts ......................................... [79]Reasons must be concise ..................................................................................... [79]Relevant rules of law and practice .......................................................................... [83]Burden and standard of proof .............................................................................. [84]Defendants giving or calling evidence ................................................................ [86]A circumstantial case and the drawing of inferences .......................................... [88]Expert evidence ................................................................................................... [93]Separate trials and verdicts.................................................................................. [96]The corporate structure ........................................................................................... [98]The projects ........................................................................................................... [100]Homebush/Cashmere/Khandallah ..................................................................... [101]Dockland Holdings Limited .............................................................................. [102]Northgate/Silverdale Project ............................................................................. [103]The Hilltop/Kawakawa project ......................................................................... [104]NKE/Awaroa/Helensville project ...................................................................... [107]The charges ........................................................................................................... [109]Theft by a person in a special relationship ........................................................ [109]False statement by a promoter........................................................................... [116]False statement to a trustee ............................................................................... [122]The question trails ................................................................................................. [125]Charges 1, 6 and 7 against Mr Bublitz – Theft by a person in a special relationship........................................................................................................................... [127]Charges 2, 3, 5, 8, 10, 11, 12, and 13 against Mr Bublitz; Charges 10, 11 and 12against Mr McKay; Charges 10, 11, 12, and 13 against Mr Blackwood – Theft bya person in a special relationship ...................................................................... [130]Charge 4 against Mr McKay; Charge 8 against Mr McKay and Mr Blackwood;Charges 14 and 15 against Mr Bublitz – Making a false statement as a promoter........................................................................................................................... [134]Charge 9 against Mr McKay and Mr Blackwood – Making a false statement to atrustee ................................................................................................................ [136]Control of Viaduct by Mr Bublitz ......................................................................... [138]The nature of the Crown's case ............................................................................. [140]"Control" in terms of NZ IAS 24 .......................................................................... [147]The expert witnesses ......................................................................................... [148]Discussion to the relevant accounting standards ............................................... [152]NZ IAS 24 ......................................................................................................... [155]The power to govern ......................................................................................... [169]Summary of evidence from which Crown says Mr Bublitz's control of Viaductshould be inferred.................................................................................................. [173]Did Mr Bublitz have control of Viaduct in terms of the accounting standards? ... [178]Did an "abiding, secret arrangement ceding control of Viaduct to Mr Bublitz" existfrom the date Priority Finance was acquired? ................................................... [178]What occurred around the time of the establishment of Viaduct ...................... [180]The significance of the advice from Mr Rhys Barlow of BDO Spicers ........... [198]Conclusion on control of Viaduct up to 29 September 2009 in terms of theaccounting standards ............................................................................................. [209]Verdicts on Charges 1 to 9 .................................................................................... [218]Charges 10 to 15 – Control of Viaduct in terms of GAAP/NZ IAS 24 after MrWevers' resignation ............................................................................................... [220]The nature of control in terms of the "real or effective control" definition in theCrown guarantee ................................................................................................... [221]What is meant by "real or effective" control? ................................................... [224]Control of Mutual Finance .................................................................................... [227]Did Mr Bublitz have "real or effective" control of Viaduct? ................................ [229]Factors leading to conclusion that Mr Bublitz had real or effective control ofViaduct .............................................................................................................. [229]Attempts to conceal or disguise Mr Bublitz's involvement .............................. [233]The management services agreement................................................................ [236]The Treasury investigation and withdrawal of the Crown guarantee ............... [238]The 13 May 2009 "Policy Directive" on salaries .............................................. [243]Subsequent transactions said to favour Hunter over Viaduct ............................ [250]Hilltop Ridge Farms Limited ............................................................................ [251]Capital note redemptions................................................................................... [252]Other evidence of Mr Bublitz's real or effective control of Viaduct ................. [259]Conclusion......................................................................................................... [266]Charges 10 to 13 – Theft by a person in a special relationship ............................. [267]Charge 13 – Mr Bublitz's real or effective control over Hilltop Ridge FarmsLimited .............................................................................................................. [269]The other elements of Charges 10 to 13................................................................ [272]Mr Bublitz's control over Mutual's investor funds ............................................ [273]Mr Bublitz's intentional dealings in the transactions ........................................ [274]Related party transactions ................................................................................. [275]Other particulars ................................................................................................ [276]Certification of arms' length terms by independent expert ............................... [278]Breach of limit of 1 per cent of Mutual's total tangible assets .......................... [280]The defendants' knowledge and intent .................................................................. [281]What each of the defendants knew about the transactions forming the basis forcharges 10 to 13 .................................................................................................... [292]Mr McKay's credibility ......................................................................................... [302]Verdicts on Charges 10 to 15 ................................................................................ [304]Charges 14 and 15 - False statements by a promoter ............................................ [305]Verdicts on Charges 14 and 15 .............................................................................. [315]VERDICTS AND CONSEQUENTIAL ORDERS - Delivered orally at 10am on5 February 2019[1] Paul Neville Bublitz: you have been tried on ten charges under s 220 of theCrimes Act 1961 of theft by a person in a special relationship, and two charges unders 242 of the Crimes Act of making a false statement as a promoter of securities underthe Securities Act 1978.[2] Bruce Alexander McKay: you have been tried on three charges of theft by aperson in a special relationship; one charge of making a false statement as a promoterof securities and one charge of making a false statement to a trustee for debentureholders under s 377 of the Companies Act 1993.[3] Richard Timothy Blackwood: you have been tried on four charges of theft bya person in a special relationship; one charge of making a false statement as a promoterand one charge of making a false statement to a trustee of debenture holders.[4] I regret that, because of late changes that I have made to the way in which Ihave set out my reasons for the verdicts I have reached, I am not in a position to delivermy written reasons today. I propose to deliver my verdicts now but to provide thewritten reasons on either Thursday or Friday of this week. I apologise for that delay.But I want to make a comment which may give the parties an understanding of at leastpart of my reasoning.[5] In general terms, the charges fell into two categories; first, those relying onalleged breaches of the Priority Finance or Viaduct Capital trust deed and, second,those relying on alleged breaches of the Mutual Finance Crown guarantee. Anessential element of all of the charges is proof that Mr Bublitz was in control of thetransacting entities so as to make the relevant transactions related party transactions.For the purposes of the charges relying on the Priority Viaduct Trust Deed, that ischarges 1 to 9, the definition of "control" in the Priority Viaduct Trust Deed is thatwhich is found in the New Zealand Accounting Standard NZ IAS 24. I have acceptedthat, among other things, it required proof that Mr Bublitz was in control of Viaductby reason of what Mr Johnstone described as "an abiding, secret arrangement cedingcontrol" to him. For charges 10 to 15, however, the relevant definitions of "control"are those in the Mutual Crown guarantee; they are alternatives, either of which mayapply. One definition incorporates the accounting standard NZ IAS 24. The other isa broader definition requiring proof, for the purposes of this case, that Mr Bublitz wasable to exercise real or effective control directly or indirectly over the parties to thetransaction, whether pursuant to a contract, an arrangement, an understanding orotherwise. The differences between the requirements in the two sets of charges goessome way to explaining my verdicts.[6] Will the defendants please stand? For the reasons that I shall deliver in writingI have reached the following verdicts:CHARGE VERDICTCharge 1: Theft by a person in a specialrelationshipMr Bublitz: Not guiltyCharge 2: Theft by a person in a specialrelationshipMr Bublitz: Not guiltyCharge 3: Theft by a person in a specialrelationshipMr Bublitz: Not guiltyCharge 4: Making a false statement as apromoterMr McKay: Not guiltyCharge 5: Theft by a person in a specialrelationshipMr Bublitz: Not guiltyCharge 6: Theft by a person in a specialrelationshipMr Bublitz: Not guiltyCharge 7: Theft by a person in a specialrelationshipMr Bublitz: Not guiltyCharge 8: Making a false statement as apromoterMr McKay: Not guiltyMr Blackwood: Not guiltyCharge 9: Making a false statement to a trustee Mr McKay: Not guiltyMr Blackwood: Not guiltyCharge 10: Theft by a person in a specialrelationshipMr Bublitz: GuiltyMr McKay: GuiltyMr Blackwood: GuiltyCHARGE VERDICTCharge 11: Theft by a person in a specialrelationshipMr Bublitz: GuiltyMr McKay: GuiltyMr Blackwood: GuiltyCharge 12: Theft by a person in a specialrelationshipMr Bublitz: GuiltyMr McKay: GuiltyMr Blackwood: GuiltyCharge 13: Theft by a person in a specialrelationshipMr Bublitz: GuiltyMr Blackwood: GuiltyCharge 14: Making a false statement as apromoterMr Bublitz: GuiltyCharge 15: Making a false statement as apromoterMr Bublitz: Guilty[7] I discharge each of you on the charges on which I have found you not guilty.[8] On all charges on which you have been found guilty, you are remanded on bailon your existing terms, to appear in this Court for sentencing at 9:00 am onWednesday, 27 March 2019.[9] I call for pre-sentence reports and, in each case, without giving any indicationabout the likely sentences that will be imposed, I direct that home detention appendicesbe prepared.Addendum[10] Mr Kilian, on behalf of Mr Blackwood, signalled that he is instructed to makean application for a discharge under s 106 of the Sentencing Act 2002 and requestedthat no convictions be entered. I indicated that I considered such an application hadalmost no prospect of success but Mr Johnstone, for the Crown, did not oppose thedeferral of convictions. The matter will be dealt with at the time of sentencing andI recalled orders that I made entering convictions for the defendants.REASONS FOR VERDICTS: Delivered in writing on 21 February 2019Introduction[11] On 13 May 2010, finance company Viaduct Capital Limited (Viaduct or VCL)was placed into receivership by the trustee for the finance company's debentureholders. On 14 July 2010, receivers were appointed to another finance company,Mutual Finance Limited (Mutual or MFL). This criminal proceeding followssubsequent investigations by the Treasury, the Serious Fraud Office and the FinancialMarkets Authority into the affairs of the two companies and the actions of theirshareholders, directors and managers.The Crown's case[12] The essence of the Crown's case is that the defendant Paul Neville Bublitz, asthe ultimate owner of a group of investment companies known as the Hunter CapitalGroup (Hunter, Hunter Capital, Hunter Group or the Group), arranged the acquisitionof, and controlled, the two finance companies, primarily to use them as vehicles forobtaining funding from members of the public to support property developmentventures he was undertaking through the Group.[13] It is alleged that, in the wake of the 2007-2008 global financial crisis (GFC)and the ensuing recession, Mr Bublitz's several ventures were experiencing seriouscash-flow problems by late 2008. A strategy was developed to create a "distressedasset" fund to take advantage of opportunities to acquire distressed assets (in the formof property loans) at low prices. The plan involved the acquisition of a Crown-guaranteed finance company that would seek deposits from the investing public,purchase Hunter assets for cash, and lend cash to Hunter and other business venturesassociated with Mr Bublitz, in order to reduce Hunter Capital's debt servicing burden.[14] In a proposal put to share brokers Forsyth Barr in December 2008, Mr Bublitzand an associate, Mr Nicholaas Wevers, indicated an intention to raise at least$25 million by way of a public debt instrument. They explained that:The impact of the current economic and investment climate on the propertysector, and finance companies that fund the sector, is well documented.Property values are under considerable downward pressure and certainfinanciers have compromised. Illiquid capital markets are compounding thesituation.The confluence of these factors provides a rare opportunity for an experiencedand entrepreneurial property financier to acquire/structure and managedistressed property loans.The success of this venture is predicated as much on appropriate capitalizationas management capability.[15] The Crown Retail Deposit Guarantee Scheme was established under the PublicFinance Act 1989 during the recession which followed the GFC. It was designed tosupport the New Zealand banking system and give some degree of assurance to NewZealand depositors at a time of financial market uncertainty. The Scheme guaranteedthat the New Zealand government would repay depositors affected by the failure ofthe New Zealand financial institutions who participated in it.[16] Mr Bublitz and Mr Wevers saw the Crown guarantee as an essentialprerequisite for obtaining the required funding from capital markets at that time, theCrown's assertion being that the acquisition of a finance company that already had theguarantee would enable Mr Bublitz to extend its benefits through the Hunter Group.[17] A potential difficulty with the proposal – limitations on related partytransactions – was identified at an early stage by the defendant Bruce AlexanderMcKay, who was at that time the manager responsible for the financial managementand reporting of the Group. In a memorandum dated 12 December 2008 addressed toMr Bublitz and Mr Wevers, Mr McKay said that it was preferable for presentations toinvestors not to propose a structure that would involve related party transactionsbecause, although they may be commercially sound, the mere fact that they werebetween related parties might be considered to be a negative in the eyes of potentialinvestors.[18] It is not disputed that related party transactions are neither uncommon norinherently improper, but they can impact significantly on the financial performance ofa company. The relevant accounting standard, NZ IAS 24 issued by the FinancialReporting Standards Board of the New Zealand Institute of Chartered Accountants,11 A body established under the New Zealand Institute of Chartered Accountants Act 1996.explains the significance of related party relationships and transactions in thefollowing terms:5. Related party relationships are a normal feature of commerceand business. For example, entities frequently carry on parts oftheir activities through subsidiaries, joint ventures and associates.In these circumstances, the entity's ability to affect the financialand operating policies of the investee is through the presence ofcontrol, joint control or significant influence.6. A related party relationship could have an effect on the profit orloss and financial position of an entity. Related parties may enterinto transactions that unrelated parties would not. For example, anentity that sells goods to its parent at cost might not sell on thoseterms to another customer. Also, transactions between relatedparties may not be made at the same amount as between unrelatedparties.7. The profit or loss and financial position of an entity may beaffected by a related party relationship even if related partytransactions do not occur. The mere existence of the relationshipmay be sufficient to affect the transactions of the entity with otherparties. For example, a subsidiary may terminate relations with atrading partner on acquisition by the parent of a fellow subsidiaryengaged in the same activity as the former trading partner.Alternatively, one party may refrain from acting because of thesignificant influence of another - for example, a subsidiary may beinstructed by its parent not to engage in research and development.8. For these reasons, knowledge of related party transactions,outstanding balances and relationships may affect assessments of anentity's operations by users of financial statements, includingassessments of the risks and opportunities facing the entity.2[19] As a consequence, debt security trust deeds related to the creation and issuingof secured debentures, unsecured deposits and unsecured subordinated capital notescommonly contain covenants restricting dealings between related parties and requiringcertain forms of disclosure. The Crown's guarantee scheme similarly imposedlimitations on, and obligations concerning the disclosure of, transactions betweenrelated parties.[20] It is said that Mr Bublitz, Mr Wevers and Mr McKay knew that Mr Bublitzcould not formally take a controlling interest in the acquired finance company or be2 New Zealand Equivalent to International Accounting Standard 24, Related Party Disclosures(NZ IAS 24), Financial Reporting Standards Board of the New Zealand Institute of CharteredAccountants, issued November 2004 and incorporating amendments up to November 2008.seen to undertake key management roles until after the finance company's Hunter assetpurchase and lending programme was concluded. On the other hand, without theprogramme Hunter was likely to fail and Mr Bublitz would be exposed to veryconsiderable personal liability. The Crown alleges that a scheme to avoid the seriousconstraint on related party dealings was developed in a meeting held in Pauanui on13 January 2009 by Mr Bublitz, Mr McKay and Mr Peter Chevin, an associate ofMr Bublitz who was then a bankrupt. Mr Wevers was not present at that meeting.[21] The Crown's case is that Mr Bublitz, Mr McKay and Mr Chevin proposed theacquisition of a finance company that would be affordable but which would also havea relatively permissive related party definition and be covered by the Crown guarantee.Mr McKay and Mr Wevers subsequently provided Mr Bublitz with advice on variousprospects, comparing each target's treatment of capital notes and equity ratios, balancesheet, price, the existence of the Crown guarantee and the requirements of eachcompany's trust deed. Having identified a Christchurch-based company, PriorityFinance Limited (Priority), as a potential target, Mr Bublitz and his associatesincorporated Phoenix Finance Holdings Limited (Phoenix) as the vehicle for theacquisition. It is alleged that Mr McKay devised the acquisition structure whichfeatured:(a) with the cooperation of the vendors of the finance company, Mr Bublitzselling certain Hunter loan assets and shares to Priority for cash;(b) Hunter lending that cash to a holding company, Phoenix, the shares inwhich would be held by a private company owned by Mr Wevers; and(c) Phoenix acquiring Priority.[22] Under this plan, notwithstanding that Mr Bublitz's Hunter Group wouldprovide all of the finance for the acquisition of Priority by Phoenix, Mr Wevers'company would be the sole holder of the shares in Phoenix which would in turn be thesole shareholder of the finance company. The advantage of this order of events wasthat, prior to its acquisition by Phoenix, Priority was not controlled by interestsassociated with Mr Bublitz or Mr Wevers, so pre-acquisition transactions and theacquisition itself would not involve related parties when they occurred on Friday,13 February 2009.[23] The parties to the acquisition sought professional advice on whether theacquisition would involve related party dealings, and offered that advice to the trusteeappointed under Priority's debenture trust deed. Mr Wevers and Mr McKay let theadvisors know of the prospect that, following its acquisition, Priority might considerfurther dealings with Hunter entities, and that Mr Bublitz might seek a shareholdingin its parent. The Crown asserts, however, that they did not disclose to the advisors:(a) the details of a settled plan to acquire a series of Hunter assetsimmediately after Priority's acquisition;(b) that Mr Bublitz and Mr Wevers had agreed Mr Bublitz would take a60% shareholding in the finance company's parent, Phoenix; or(c) the full extent to which they anticipated Mr Bublitz would be in aposition to control, and act in a key management role for, the financecompany.[24] Much occurred on the next working day after the acquisition, Monday16 February 2009:(a) Mr Wevers and Mr McKay were appointed the directors of the financecompany, which was renamed Viaduct Capital Limited.(b) Viaduct was assigned the lease of premises at Viaduct Harbour Avenue,Auckland from which the Hunter Group operated and assumed primaryresponsibility to make lease payments.(c) As well, Viaduct purchased Hunter's plant and equipment held at thosepremises for cash in the order of $135,000.(d) On that day, and over the ensuing weeks and months, a number oftransactions occurred which the Crown says were part of the pre-arranged plan.[25] The Crown alleges that, because Mr Bublitz controlled Viaduct and the Hunter-related parties with whom it contracted, the transactions were between related parties.It says that the failure of the defendants to disclose them and, where necessary, obtainprior approval, breached the defendants' obligations under the relevant trust deeds andthe Crown guarantees.[26] The Crown maintains that various techniques and elaborate structures wereimplemented to disguise Mr Bublitz's overall control of each of the parties to theongoing asset purchases and loans. It is said, for example, that the transactionsinvolved requests of associates, who were not truly undertaking investments, to"warehouse" or store shares for a limited period, or to have them held off the HunterGroup balance sheet, in order to generate cash-flow for the Hunter entities by on-selling them to Viaduct. Some associates were asked to "front" an ostensiblyindependent entity to which Viaduct would advance funds or from which Viaductwould purchase pre-existing lending. Most significantly, it is alleged by the Crownthat, although Mr Wevers appeared to own 100 per cent of Viaduct through his privateinvestment company, there was in fact a shareholder arrangement between Mr Bublitzand Mr Wevers giving Mr Bublitz actual control over Viaduct's governance andmanagement. This arrangement was not disclosed to the advisors engaged by theHunter Group and Viaduct from time to time, the Viaduct trustee or the New ZealandTreasury.[27] The Crown alleges that, in reliance on the benefits provided by the Crownguarantee, a prospectus was issued by Viaduct on 3 March 2009 for the subscriptionof up to $20 million of debenture stock. It is said that, while the prospectus noted theViaduct trust deed's restrictions on related party lending, Mr McKay and Mr Wevers,as the directors responsible for issuing it, deliberately omitted any reference to whatthe Crown says were the numerous related party transactions that Viaduct had alreadyundertaken after the 13 February 2009 acquisition. The Viaduct offer was said to leadto a $6 million increase in Viaduct's cash position.[28] On 20 April 2009, however, Treasury advised Viaduct that it intended towithdraw the Crown guarantee from Viaduct Capital Limited. The Secretary to theTreasury considered that Viaduct's activities included breaches of the guarantee deed,demonstrating that the business or affairs of Viaduct were being, or were intended orlikely to be, carried on in a manner which may extend the effective benefit of theguarantee to persons who were not intended to receive that benefit and that wasotherwise inconsistent with the intentions of the Crown in entering into the guaranteedeed.[29] The withdrawal of the guarantee led to a renewed tightening of Viaduct's cash-flow such that, on 13 May 2009, Mr Bublitz issued what the Crown says was adirective to Mr Wevers to cut senior executive base salaries by 40 per cent with effectfrom 1 June 2009. Matters did not improve and, in September 2009, Mr Weversadvised Mr Bublitz that "drastic actions" were required, including a suggestion thatMr Bublitz should sell his house and other Hunter assets to raise cash. Mr Weverssaid that serious consideration should be given to winding up Viaduct. It is allegedthat Mr Bublitz's control over Viaduct is demonstrated, among other things, by hisarranging for Mr Wevers to be replaced as a director of Viaduct by the defendantRichard Timothy Blackwood, another long-term associate of Mr Bublitz, and for thetransfer of 51 per cent of the shareholding in Phoenix (Viaduct's owner) to Mr McKay"for a peppercorn price". The Crown alleges Mr Bublitz remained in effective controlof Viaduct nevertheless.[30] Mr Bublitz set about purchasing another finance company which had thebenefit of the Crown guarantee. Through a Hunter Group company, Argus CapitalLimited, he arranged the purchase of Mutual Finance Limited on 11 December 2009.Being conscious of the need to leave Viaduct at arms' length from Mutual, ostensiblyat least, the acquisition was structured on the basis that Mr Bublitz's company wouldacquire 60 per cent of the shareholding initially, with the balance of the shares to beacquired in two further tranches in March and October 2010 respectively. Upon initialacquisition, the managing director of Mutual, Mr Lindsay Kincaid, remained adirector; he resigned on 21 April 2010.[31] Mr Bublitz was managing director of Mutual and the ultimate owner of itsshares. It is not disputed that he controlled Mutual. Mr Bublitz appears to have beenalert to the prospect that, having removed the Crown guarantee from Viaduct, Treasuryofficials would take a close interest in the circumstances of the Mutual acquisition.The Crown says that, to pre-empt any Treasury intervention, and notwithstanding thatthere was no legal requirement to do so, Mr Bublitz sought the Treasury's "commentsand questions about the proposed transactions so that the parties [could] be informedas to The Treasury's view of the transaction".[32] After saying that the Hunter Group proposed to settle the purchase of an initial60 per cent stake in Mutual for cash, Mr Bublitz said:HCG does not intend to or propose to sell any assets to MFL or undertakeany other form of capital restructuring.[33] In a letter dated 27 November 2009, Mr Bublitz told the Treasury's team leaderof the guarantee scheme:Mutual currently does not intend to purchase any assets from ViaductCapital. However, if in the future Mutual does consider purchasing assetsfrom Viaduct Capital, an independent expert will be employed to assessthe merits of any such transaction and to ensure it is on arms' length terms.[34] It is the Crown's case that those assurances were disingenuous in thatMr Bublitz always intended that Mutual would be operated as part of and for thepurposes of providing related party funding to Viaduct and other Hunter Groupentities, including through selling in loans. For example, responding to concernsexpressed by Kiwibank in February 2010 about the state of the Hunter Group's bankaccounts and Kiwibank's exposures to three Hunter Group projects, Mr Bublitzaddressed in tandem the circumstances of both Viaduct and Mutual, and referred to "anumber of interdependencies within the funding structure of the [Hunter] group".[35] The Crown says that, in issuing prospectuses in March 2009 and October 2009,Mr McKay and, in respect of the latter document, Mr Blackwood also, failed todisclose related party dealings which ought to have been disclosed to potentialinvestors. Similarly, in prospectuses issued by Mr Bublitz on behalf of Mutual inMarch 2010, the extent of related party transactions entered into was withheldimproperly from potential investors.[36] The Crown alleges that, up to the receivership of Viaduct in May 2010 and ofMutual in July 2010, the defendants conducted a considered and sophisticated deceit.Drawing on their experience in finance and commerce, it is said the defendantsunderstood the importance of appearances, including those created by regular businessdocumentation. The Crown says that the defendants maintained a façade of legitimacydesigned to support representations made to those who could not abide related partytransactions, such as the Treasury and the trustees of both Viaduct and Mutual.[37] It is common ground that advice was sought, from time to time, from reputableprofessional advisers, such as law firm DLA Phillips Fox and accounting firm BDOSpicers, concerning the acquisition of Priority Finance Limited (Viaduct) and its initiallending arrangements. The Crown alleges, however, that in establishing the schemeMr Bublitz, Mr McKay and Mr Wevers carefully controlled the scope of the adviceand the information on which it was based, particularly when initial advice was notfavourable. It is said that what the Crown calls the "layers of deceit", intended toconvey a false impression that Viaduct was under the control of Mr Wevers andMr McKay, were difficult to maintain. The Crown says that the staff and contractorsemployed or engaged by the finance companies and the Hunter entities effectivelymerged the activities of the various entities, sharing premises and resources, underMr Bublitz's overall control. Although Mr Blackwood joined the enterprise after theinitial planning and implementation of the scheme, it is asserted that he knew at timesrelevant to the charges against him that Mr Bublitz had control of Viaduct and theother entities and that undisclosed related party transactions had occurred and werecontinuing to occur.[38] The central proposition in the Crown's case is that whether any particulartransaction is a restricted or prohibited related party transaction is a question ofsubstance, assessed by reference to all of the facts relating to the transaction. TheCrown says that is particularly so where a transaction may have been structured withthe intention of avoiding characterisation as a related party transaction.[39] It is the Crown's case that restrictions on related party transactions and therequirement that they must be reported presented Mr Bublitz and the Hunter Groupwith an insurmountable legal obstacle to their ongoing reliance upon the financecompanies it acquired for the purpose of resolving Hunter's serious cash-flow issuesfollowing the GFC. It is alleged that to rescue the Hunter Group, Mr Bublitz,Mr McKay and Mr Blackwood needed to use for the benefit of entities within theHunter Group funds provided by investors who believed that the Crown guarantee andViaduct's trust deed prevented the finance companies from entering into more than aminimum of related party transactions. It is submitted that despite the legal obstacles,the defendants created an elaborate deception reaching well beyond the ordinarybounds of commerce, or even risky commercial decisions, into deceit and fraud. Thedefendants are alleged to have exploited weaknesses in the systems designed toprevent their actions, establishing sophisticated structures designed to disguise thesubstance of lending arrangements and carefully controlling the disclosure ofinformation of the structures' true substance. It is said by the Crown that Mr Bublitz'scontrol must be inferred because, among other things, many of the transactions underscrutiny were not managed commercially in Viaduct's interests but in the interests ofthe Hunter entities he owned and controlled which obtained much-needed cash as aresult.The consequences of the alleged offending[40] Although it is not relevant to proving any element of the charges, I record theCrown's submissions about the recoveries and stakeholder losses said to arise from thealleged offending to put the proceeding into context. It is said that assessing the totalamount of recoveries and losses following the failure of the two finance companies isdifficult. First, the receiverships have not as yet concluded. Moreover, recoveriesrelating to Mutual have been complicated by the involvement of Crown AssetManagement Limited (CAML) which, upon the Crown guarantee to Mutual being metby way of payment directly to Mutual's depositors, acquired its remaining assets forthe purpose of off-setting the Crown's losses under the guarantee.Viaduct losses[41] It is said that minimal recoveries have been made from the more than$8 million in loans that were outstanding at the date of the Viaduct receivership. Inparticular, Viaduct's receivers recovered little on amounts outstanding under Viaduct'sloan to Hunter-related entities. Nothing was recovered from the Northgate,Homebush, Hilltop and NKE loans. At the time of receivership, depositors withViaduct had advanced amounts totalling about $7.85 million of which around$530,000 was not guaranteed under the Crown guarantee because it had been advancedfollowing withdrawal of the guarantee on 20 April 2009. In total, the Crown paid theViaduct deposit holders who were covered under the guarantee the sum of$7.6 million.[42] Viaduct's receivers have distributed seven cents in the dollar to the Crown andto non-guaranteed depositors, totalling $550,000. The receivers have estimated beingable to pay a further 40-50 cents in the dollar because the Financial Markets Authorityhave reached a settlement with Viaduct's trustee in the sum of $4.5 million, based ona claim that the trustee failed to prevent the defendants' conduct which gave rise to thelosses.Mutual losses[43] All Mutual deposit holders were guaranteed by the Crown. Under theguarantee, the Crown paid the debenture holders just over $9 million, but it is said thatthe Crown is unlikely to recover all of that sum. To date recoveries have been madeas follows:(a) around $1.8 million by way of interim distribution; and(b) around $2.8 million, the proceeds of the sale of assets that CAMLacquired from the receivers, although the costs incurred in realising thatamount from those asset sales has not been taken into account. TheCrown also expects to recover the bulk of a sum of $1.12 million incash which Mutual's receivers continue to hold pending resolution of adispute with Viaduct's receivers arising out of the security sharingarrangements.[44] It is said that, in total, the Crown is likely ultimately to have lost around$3.38 million because of Mutual's failure and the Crown's obligation to honour itsguarantee.The respective roles of the defendants[45] In the Hunter Capital corporate profile of December 2009, Mr Bublitz wasdescribed as the major shareholder and managing director. It was said that Mr Bublitzdrove the overall Group's strategic direction and that he took a lead role in thestructuring and negotiation of transactions. Mr McKay was said to be the chieffinancial officer for Hunter Capital, responsible for the financial management andreporting for the Group and its various entities. He was described as taking a key rolein the analysis of investment opportunities and as being responsible for riskmanagement for the Group. The profile said Mr Blackwood was chief investmentofficer for Hunter Capital, responsible for the lending and equity investment activitiesof the Group.[46] The outcome of this prosecution, however, does not turn on the broaddescription of the positions held by and the experience of these three men. It turns onwhat may be proved by an analysis of the activities conducted by each of them in theperiod from 8 March 2009 to 14 July 2010; more specifically, on what each of themknew, intended and did at material times during the period.[47] The defendants are charged with a variety of offences. Mr Bublitz faces tencharges under s 220 of the Crimes Act 1961 of theft by a person in a specialrelationship, and two charges under s 242 of the Crimes Act of making a falsestatement as a promoter of securities under the Securities Act 1978.[48] Mr McKay also faces three charges of theft by a person in a specialrelationship. In addition, he faces two Crimes Act charges of making a false statementas a promoter and one charge of making a false statement to a trustee for debentureholders under s 377 of the Companies Act 1993.[49] Mr Blackwood faces four charges of theft by a person in a special relationship;one charge of making a false statement as a promotor and one charge of making a falsestatement to a trustee of debenture holders.The regulatory framework[50] Restrictions on the dealings between related parties and the requirements todisclose any such dealings at relevant times are at the heart of this case. There isnothing inherently wrong or unlawful about transactions between related entities, butcommercial decisions in such dealings may be motivated by factors that result in anexchange of assets at less than the value that might apply in an arms-length transaction.The framework within which funds are sought from members of the investing publicis intended to ensure that potential investors are fully and fairly informed about thetrue nature of the investment they are invited to make, and sufficiently aware of theproposed use of their funds, to undertake a reasonable assessment of the risk.[51] The protections provided for the investing public involved in this case arecontained in:(a) the Priority/Viaduct trust deed between the finance company andsubscribers whose investments were secured by the issue of debentures;and(b) the provisions of the Crown guarantees.[52] While the related party provisions of the relevant documents addressed similarissues, they were not in identical terms and it is necessary to set them out.The Priority/Viaduct trust deed[53] Clause 6.4 of the Priority trust deed relevantly reads as follows:6.4 Restrictions on DealingsNeither the Issuer nor any of the Charging Subsidiaries will withoutthe prior written consent of the Trustee:Related Party Transactions6.4.3 Enter into:6.4.3.1 any Related Party Transaction except in the ordinarycourse of business and where the terms thereof areevidenced in writing and the consideration therefor ison the basis of an arms' length transaction as betweentwo unrelated parties contracting in an open market,provided however that in any twelve month period theaggregate value of all Related Party Transactionsentered into or remaining outstanding shall notexceed 2% of the Total Tangible Assets, or6.4.3.2 any Related Party Loan.[54] Clause 1.1 (headed "Definitions") relevantly read as follows:In this Deed unless the context otherwise requires:"Accounting Standards" means "generally accepted accounting practice" asdefined in Section 3 of the Financial Reporting Act [1993].3"Charging Group" means the Issuer and the Charging Subsidiaries (if any)or when the context so admits or requires any one or more of them."Related Party" means:(a) a Related Company; or(b) any shareholder and director of any member of the Charging Groupor any Person with the first degree of relationship to such Person orany Person who is a related Person under any applicable AccountingStandards [Emphasis added]."Related Party Loan" means:(a) the provision of financial accommodation by a member of theCharging Group to a Related Party, or(b) the giving of a guarantee or indemnity by a member of the ChargingGroup to the benefit of a Related Party,but, for the avoidance of doubt, does not include the provision of financialaccommodation, in the ordinary course of business, and on arms' lengthcommercial terms, to a person who is not a Related Party but who has enteredinto a contract, in an open market, with a Related Party.3 Now replaced by the Financial Reporting Act 2013 but in force at all relevant times. Section 3provided materially that "financial statements comply with generally accepted accountingpractice only if those statements comply with (a)pplicable financial reporting standards.""Related Party Transaction" means a transaction of any nature between amember of the Charging Group and a Related Party including, but not limitedto:(a) the investment by a member of the Charging Group in the capital orequity of a Related Party;(b) the transfer of assets between a member of the Charging Group and aRelated Party;(c) the provision of services by or to a member of the Charging Group toor by a Related Party;but does not include:(d) a Related Party loan;(e) the provision of a financial accommodation by a Related Party to amember of the Charging Group on arms' length commercial terms, orany payment by a member of the Charging Group to that Related Partyof principal, interest or other moneys in respect of that financialaccommodation in accordance with those terms;(f) the provision of management and/or administration services to amember of the Charging Group by a Related Party on arms' lengthcommercial terms;(g) transactions with a Related Party in relation to investments of amember of the Charging Group which are, or are to be, held by thatRelated Party as nominee or trustee for a member of the ChargingGroup;(h) payment of reasonable salary and other remuneration benefits to aRelated Party who is employed by a member of the Charging Group,or(i) payment of reasonable remuneration and expenses to a Director forhis or her services as a Director,and, for the avoidance of doubt, does not include the provision of financialaccommodation, in the ordinary course of business, and on arms' lengthcommercial terms, to a person who is not a Related Party but who has enteredinto a contract in an open market, with a Related Party.[55] As will be seen from the particulars of the charges set out below, the restrictionson the Priority/Viaduct trust deed on related party dealings differ depending onwhether the subject transaction is a "loan" as defined in the trust deed, or a"transaction" as defined. Importantly, the trust deed contemplates that related partytransactions other than loans will be permitted so long as they meet certain conditionsand, significantly, do not take the aggregate value of all related party transactionsconducted over a 12-month period beyond specified limits.The New Zealand Accounting Standards[56] All of the charges, including those related to allegations regarding the relevantprospectuses, rest on an allegation of a failure by the defendants to disclose theundertaking of related party transactions on the basis that Mr Bublitz, at relevanttimes, was a related person under any applicable accounting standards.4 It is commonground that, as the Crown has submitted, the primarily applicable accounting standardduring the period 16 February 2009 to 13 May 2010 was New Zealand Equivalent toInternational Accounting Standard 24 – Related Party Disclosures (NZ IAS 24). Thisstandard was issued in November 2004 and incorporated amendments up to andincluding 30 November 2008. Its interpretation is assisted by cross-reference to theNew Zealand Equivalent to International Accounting Standard 27 – Consolidated andSeparate Financial Statements (NZ IAS 27).NZ IAS 24[57] The relevant provisions of paragraph 9 of the NZ IAS 24 are:Related party A party is related to an entity if:(a) directly or indirectly, through one or more intermediaries, the party:(i) controls, is controlled by, or is under common control with,the entity (this includes parents, subsidiaries and fellowsubsidiaries);(ii) has an interest in the entity that gives it significant influenceover the entity; or(iii) has joint control over the entity;(d) the party is a member of the key management personnel of the entityor its parent;(f) the party is an entity that is controlled, jointly controlled orsignificantly influenced by, or for which significant voting power insuch entity resides with, directly or indirectly, an individual referredto in (d) or (e); or 4 For the purposes of Charges 11 to 15, an alternative definition of "control" may apply under theprovisions of the Mutual Crown guarantee.A related party transaction is a transfer of resources, services or obligationsbetween related parties, regardless of whether a price is charged.Control is the power to govern the financial and operating policies of an entityso as to obtain benefits from its activities.Key management personnel are those persons having authority andresponsibility for planning, directing and controlling the activities of theentity, directly or indirectly, including any director (whether executive orotherwise) of that entity.Significant influence is the power to participate in the financial and operatingpolicy decisions of an entity, but is not control over those policies. Significantinfluence may be gained by share ownership, statute or agreement.[58] Under paragraph 10:In considering each possible related party relationship, attention is directed tothe substance of the relationship and not merely the legal form.[59] And relevantly under paragraph 11:In the context of this Standard, the following are not necessarily relatedparties:(a) two entities simply because they have a director or other member ofkey management personnel in common, notwithstanding (d) and (f) inthe definition of "related party".(c) (i) providers of finance,simply by virtue of their normal dealings with an entity (even though they mayaffect the freedom of action of an entity or participate in its decision-makingprocess); NZ IAS 27[60] The meaning of "control" in NZ IAS 24 is informed by NZ IAS 27Consolidated and Separate Financial Statements. This standard adopts the samemeaning of "control" as appears in NZ IAS 24; namely:Control is the power to govern the financial and operating policies of an entityso as to obtain benefits from its activities.[61] Paragraph 13 of NZ IAS 27 provides:Control is presumed to exist when the parent owns, directly or indirectlythrough subsidiaries, more than half of the voting power of an entity unless,in exceptional circumstances, it can be clearly demonstrated that suchownership does not constitute control. Control also exists when the parentowns half or less of the voting power of an entity when there is:(a) power over more than half of the voting rights by virtue of anagreement with other investors;(b) power to govern the financial and operating policies of the entityunder a statute or an agreement;(c) power to appoint or remove the majority of the members of the boardof directors or equivalent governing body and control of the entity isby that board or body; or(d) power to cast the majority of votes at meetings of the board ofdirectors or equivalent governing body and control of the entity is bythat board or body.[62] I return to these issues below in discussing the evidence upon which the Crownrelies.The Mutual Crown guarantees[63] The provisions of the Crown guarantees also formed part of the regulatoryframework. Clause 6.2(b) of the replacement Crown guarantee to which Mutual wasa party from 8 December 2009 (headed 'Related Party transactions') reads:The Principal Debtor shall not (and shall ensure that its subsidiaries shall not),without the prior written consent of the Crown, enter into any transaction (orseries of linked or related transactions) having a value (at the time of entry)exceeding one per cent (1%) of the Total Tangible Assets of the PrincipalDebtor (at the time of entry) to which a Related Party of the Principal Debtor(other than a wholly-owned subsidiary of the Principal Debtor) is party unless:(i) that transaction is on arms' length terms; and(ii) an independent expert approved by the Crown in writing first certifiesto the Crown in writing that the transaction is, in the opinion of thatexpert, on arms' length terms.[64] Clause 1.1 (headed "Definitions") relevantly provides as follows:GAAP means "generally accepted accounting practice" within the meaning ofthat term under the Financial Reporting Act 1993.Person includes an individual, a body corporate, any association of persons(whether corporate or not), a trust (including the trustees of a trust acting inthat capacity), and a state and any agency of a state (in each case whether ornot having separate legal personality).Related Party of the Principal Debtor means a Person who is, or at any dateafter the Announcement Date was, a Person who would be a "related party" asthat term is defined in section 157B of the Reserve Bank Act 1989, as if:(a) the Principal Debtor was a "deposit taker"; and(b) "related party" included any Person who controls the Principal Debtorand any Person who is controlled by any such Person or by thePrincipal Debtor.[65] And clause 1.2 (headed "Construction"), so far as is relevant, reads:In this Deed, unless the context requires otherwise:(f) Control: a Person ("A") is "controlled" by another Person ("B") if:(i) A is a subsidiary of B under the law of incorporation of A orfor the purposes of GAAP; or(ii) B is able to exercise real or effective control, directly orindirectly, over A or over a material part of A's business oraffairs (whether pursuant to a contract, an arrangement or anunderstanding, as a result of the ownership or control ofsecurities or other interests in or issued by A, or otherwise)except where A is a natural person and B's control arises solelyunder an enduring power of attorney granted by A in favourof B.[66] The Crown case in respect of each of Mutual's transactions with related partiessaid to breach the Crown guarantee is as set out in the Crown Charge Notice; that is,in terms of the Crown guarantee, Mr Bublitz controlled both parties, because:(a) each party was a subsidiary of Mr Bublitz for the purposes ofGAAP/NZ IAS 24; or(b) Mr Bublitz was able to exercise real or effective control, directly orindirectly, over each party or over a material part of each party'sbusiness or affairs.[67] In Charge 13, the Crown alleges that Mr Bublitz breached the related partyprovision of the Crown guarantee because he controlled both Mutual and HilltopRidge Farms Limited; the Priority/Viaduct trust deed does not apply so the Crown'scase rests on the application of the accounting standards to Mr Bublitz's relationshipswith Mutual and Hilltop Ridge Farms Limited or, alternatively, on the "real or effectivecontrol" definition.The conduct of the trial[68] The trial was conducted by me without a jury in accordance with the provisionsof s 105 of the Criminal Procedure Act 2011. As directed by me under s 105(1)(a),counsel provided me with written opening and closing statements, supplemented(except in one instance) by oral submissions, addressing me on matters of law andfact.5 I was assisted by counsel's submissions on aspects of the Crown Charge Noticeand a draft question trail I had prepared to assist me to identify the elements of thealleged offending the Crown is required to prove beyond reasonable doubt for eachcharge against each defendant.[69] At the conclusion of the hearing, I reserved my decision on the verdicts to beentered in respect of each charge and adjourned the sitting of the Court until14 December 2018. I later remanded the defendants to appear on 5 February 2019 forthe delivery of my verdicts.[70] Having heard the evidence adduced by the Crown and the submissions onbehalf of both the Crown and the defendants, I gave the verdicts recorded above at [6]when the case resumed.The first trial[71] It is not insignificant that this is a re-trial of a prosecution first tried beforeWoolford J as a Judge sitting without a jury. In that case, there were fourdefendants: Mr Bublitz, Mr McKay and Mr Blackwood, and a fourth man, Lance5 Although he filed comprehensive written closing submissions, Mr Bradford elected not to addressme orally in closing the case for Mr McKay.David Morrison, who was an accountant who advised and worked on behalf ofMr Bublitz and the Hunter Group entities and was a trustee of several relevant trusts.6[72] Woolford J described the 12 weeks initially allocated for the first trial as"grossly inadequate". The trial started on 8 August 2016 and was aborted nine monthslater, on 10 May 2017, because of late disclosure by the Crown. The original CrownCharge Notice contained 49 charges which would have required the Judge to deliver125 separate verdicts. The defendants were discharged on a number of chargesthroughout the trial, in some cases because the charges duplicated allegationsconcerning the same transactions, or to remove allegations of offending as partiesdespite the defendant having no direct role in the transactions, or administrativereasons, to render a complex case more manageable in view of the significant over-run in the duration of the trial.This trial – evidential issues[73] The re-trial before me was initially set down for 22 weeks of hearing.Responsibly and sensibly, the prosecuting agency, the defendants and their respectivecounsel took a focused approach to the charges that remained for determination. Thatresulted in an agreement between counsel, approved by me, that much of the oralevidence given at the first trial could be included as part of the evidential record forthis trial by consent, with the briefs of evidence and the transcript of oral evidencefrom the first trial, including cross-examination and re-examination, being madeavailable without the witnesses having to be called. That evidence was treated for allpurposes as if it had been given on oath in this trial. Other witness statements wereadmitted by consent. Several witnesses, including Mr McKay, gave evidence orally.[74] Most significantly, several hundred documents considered by the parties to berelevant were also admitted by consent, subject to challenges to admissibility by oneor more of the defendants. Although I was asked to address the objections to theadmissibility of some exhibits prior to trial, I concluded that a detailed knowledge ofthe factual basis for the Crown's allegations was required before decisions could bemade as to the relevance of certain challenged documents, especially in view of the6 Mr Wevers was also charged, but he died before the trial.different roles said to be played by each defendant and issues about the admissibilityof documents on hearsay grounds or on relevance grounds under ss 7 and 8 of theEvidence Act 2006.[75] Most of the exhibits were produced en masse, the Crown's evidence being thateach of the documents other than those created specifically for the purposes of theprosecution or the trial, had been located on various computer drives or servers seizedin the course of the investigation pursuant to search warrants. In a mid-trial rulingwhich summarises the position I had taken, largely without strong objection bycounsel, I indicated my view that most, it not all, of the documentary evidenceappeared to be admissible against at least one or more of the defendants, but that adetermination of which document is admissible against whom and for what purposewas best made on a document by document basis in the context of reaching myfindings on the facts.7[76] I held that the documents produced through the Crown's witnesses should betreated as admissible on the basis that they met the threshold test of relevance, eitherto establish the factual background to and ingredients of the charges faced by aparticular defendant, or to prove what he did, what he knew and what he intended atrelevant times, or all of the above. I also held that the documents would be receivedinto evidence on the basis that each of the documents had probative tendency whichmade them admissible, leaving open for later determination whether the evidencefound to be admissible on close analysis had sufficient probative tendency to establishthe Crown's allegations. I appreciated that some of the documentary evidence in theform of email correspondence or memoranda, while meeting a test of generalrelevance as to proof of the background or from which inferences as to the occurrenceof certain events might be drawn, might have little or no probative value in respect ofany defendant who was not proved to have been a party to the document, or to havebeen aware of its contents. I have been particularly mindful throughout that, to theextent that any document authored by a defendant may be taken as an admission bythat defendant, the admission would be admissible against only that defendant and notagainst any other defendant who had not adopted it.7 R v Bublitz HC Auckland CRI-2014-004-2293, 17 September 2018.[77] Where a document was not referred to or explained by a Crown witness, I havetaken the view that unless its meaning is plain on its face, I should not draw anyadverse inference from it against any defendant unless it is plainly admissible againstthat defendant and its meaning or import is clear on the face of the document.Mr Nicholaas Wevers[78] Nicholaas Wevers, who was a central figure in the acquisition of PriorityFinance Limited, its conversion into Viaduct Capital Limited and the operation of thatfinance company in conjunction with Mr Bublitz and Mr McKay, was originallycharged with the others as a defendant. Mr Wevers died before the trial. He had beeninterviewed twice by Mr Jason Weir, a member of the forensic team of the charteredaccounting firm, Deloitte, who was engaged by the Financial Markets Authority toconduct an investigation into the affairs of both Viaduct and Mutual. The defendantssought to have the transcripts of the two interviews, on 15 and 21 November 2012respectively, admitted as evidence, notwithstanding that it is hearsay, on the groundsprovided by s 18 of the Evidence Act 2006, given that Mr Wevers was regrettably nolonger available as a witness. The statements had been admitted by the Crown asevidence at the first trial. After initially objecting to that course on the grounds thatthe circumstances relating to the statements did not provide reasonable assurance thatthe statements were reliable, the Crown admitted the statements as evidence byconsent, reserving its right to criticise Mr Wevers as an untruthful witness.The approach to setting out the reasons for the verdictsReasons must be concise[79] Because this matter proceeded as a Judge alone trial, I am required by s 106(2)of the Criminal Procedure Act to give reasons for the verdicts. The Court of Appeal'sjudgment in R v Connell directs me to give a statement of the elements of each chargeand any other particularly relevant rules of law or practice; a concise account of thefacts; and a plain statement of my essential reasons for finding as I have.88 R v Connell [1985] 2 NZLR 233 (CA) at 237-238.[80] My reasons should be enough to show that I have considered the main issuesraised at the trial and to make clear in simple terms why I have found that theprosecution has proved or failed to prove the necessary ingredients beyond reasonabledoubt. In this case, the credibility of Mr McKay is in issue, so I should say explicitlywhether key evidence given by him is either definitely accepted or definitely rejected.[81] In expressing these reasons, I have taken into account also the directions of theCourt of Appeal in R v Eide that I should have regard to how the case will be addressedon any appeal.9 A judgment which is so concise that some of the key facts in the caseare required to be reconstructed by the Court on appeal is too concise. In a complexcase such as this, it is not possible to explain the key elements of the Court's reasoningwithout an adequate survey of the relevant facts. Although the evidence of thewitnesses in this case occupies many hundreds of pages and over 1700 documentshave been produced in evidence, I have been assisted by the pragmatic approach of allcounsel to identify the key issues for determination; much of what the Crown mustprove for each charge, while not conceded, is not seriously disputed.[82] I acknowledge, however, that this case arises out of the collapse of two financecompanies and involves allegations of theft and deliberate misconduct in dealing withfunds invested by the public. The public interest is also engaged by the backgroundto the alleged offending of the Crown Retail Deposit Guarantee Scheme and the needfor the taxpayer to meet substantial costs and losses said to have flowed from thefailure of the two companies. I am conscious, therefore, that these reasons are ofinterest to an audience which is wider than the prosecutor and the defendants so that Ishould explain in a comprehensible form the particular features of the scheme whichhas led to the bringing of these charges.Relevant rules of law and practice[83] These are the rules of law and practice I applied in making my findings andreaching my verdicts in respect of each charge against each defendant.9 R v Eide [2005] 2 NZLR 504 (CA) at [21].Burden and standard of proof[84] The Crown carried the burden throughout of proving each element of eachcharge against each defendant beyond reasonable doubt before I could bring in averdict of guilty. The starting point was the presumption that the defendant wasinnocent of any charge until the contrary was proved beyond reasonable doubt. Areasonable doubt requiring me to enter a verdict of not guilty on any charge is anhonest and reasonable uncertainty left in my mind about the guilt of the defendant onthat charge, after I had given careful and impartial consideration to all of the relevantevidence.10 The standard is very high: it was not enough for the Crown to persuademe that the defendant was probably guilty or even that he was very likely guilty of anycharge he faced. If I am left with an honest and reasonable uncertainty as to his guilt,I was required to find him not guilty.11[85] That said, it is virtually impossible to prove everything to an absolute certaintywhen dealing with a reconstruction of past events and the Crown did not have to doso.12 Further, the Crown was not required to prove beyond reasonable doubt everyfact upon which it relied in support of its case on any charge. To put that into thecontext of deciding on the crucial issue of Mr Bublitz's control of Viaduct CapitalLimited, it was necessary for me to be satisfied beyond reasonable doubt thatMr Bublitz was in control of Viaduct in terms of the accounting standards, but theCrown was not required to prove to that same high standard every piece of evidenceon which it relied to prove that element.Defendants giving or calling evidence[86] Mr McKay gave evidence and Mr Bublitz called evidence from an expertwitness, Mr Hucklesby, but a defendant does not assume any burden of proof by givingor calling evidence. As a general principle, the evidence given or called by a defendantis admissible for all purposes for or against all defendants and it simply becomes10 R v Wanhalla [2007] 2 NZLR 573 (CA) at [49]; Woolmington v Director of Public Prosecutions[1935] AC 462 (HL) at 481; R v Hansen [2007] NZSC 7, [2007] 3 NZLR 1 at [52] and R v Harbour[1995] 1 NZLR 440 (CA) at 448.11 R v Wanhalla at [49].12 R v Whale [2013] NZHC 731 at [48] and R v Wanhalla at [24]-[25].evidence in the trial for consideration along with the other evidence adduced.13I accept Mr Johnstone's submission that the content of the professional advice receivedby the defendants from time to time is relevant to prove only the nature of the advicereceived.[87] Mr Bublitz and Mr Blackwood did not give evidence. They were not obligedto do so and the mere fact that they did not give evidence did not add to the Crown'scase against them.A circumstantial case and the drawing of inferences[88] Despite the vast scope of the documentary material seized and examinedduring the inquiry into Viaduct's affairs by the regulatory authorities, no documentproving the terms or even the existence of a "secret arrangement" vesting control ofViaduct in Mr Bublitz has been produced to the Court. The Crown's case on thatessential element, and on other elements related to the state of mind of any defendantat a relevant time, was circumstantial, relying on inferences drawn from establishedfacts to prove that Mr Bublitz had been given the power to govern Viaduct and to proveother elements.[89] The answers to the several questions I was required to answer in consideringeach charge turn essentially on the inferences which may be drawn from memoranda,emails and documents that were prepared. A combination of circumstances, takentogether as a whole, may create a strong conclusion of guilt even though no one ofthem would raise a reasonable conviction or more than a mere suspicion.14 Whether Idrew these inferences was for me as the judge of the facts. If it was necessary to infera fact to establish an element of an offence, I was required to be satisfied beyondreasonable doubt that it can be drawn, but only those inferences that are required toprove an element of an offence need to be proved beyond reasonable doubt.1513 Hart v R [2010] NZSC 91, [2011] 1 NZLR 1 at [54].14 Thomas v R [1972] NZLR 34 (CA) at 37 and 39-41, adopting R v Exall (1886) 4 F & F 922 at 928;(1866) 176 ER 850 at 853. See also, Milner v R [2014] NZCA 366 at [15].15 R v Sullivan [2014] NZHC 2501 at [405].[90] A permissible inference is a logical conclusion drawn from facts that I acceptare reliably established.16 It is not a guess. If one or more inferences are equallyavailable, what is left is mere speculation or conjecture. On ultimate issues, in orderto avoid the possibility of inappropriate speculation, the inference most favourable toa defendant should be drawn.17 Mr Johnstone correctly identified the ultimate issuesto be determined in this case as whether, to the extent relevant:(a) Mr Bublitz controlled Viaduct, Mutual and the various entities in theHunter Capital Group with which the finance companies transacted;and, if so(b) the defendants knew that to be the case.[91] I accept Mr Johnstone's submissions that "the mere fact that somecircumstances might arguably permit an inference inconsistent with guilt is notenough" to raise a reasonable doubt,18 and that "speculation in aid of a defendant is nomore permissible than speculation in aid of the prosecution".19[92] Circumstantial evidence allows a fact-finder to infer that a particular factexists, even if there is no direct evidence of it. A single piece of circumstantialevidence will generally allow for more than one explanation. However, a number ofseparate items of circumstantial evidence, when considered together, may stronglysupport the drawing of a particular inference. Circumstantial evidence derives its forcefrom the involvement of a number of factors that independently point to a particularfactual conclusion.20 Juries are commonly referred to the analogy of a rope in thatwhile any one strand may not support a particular load, the combined strands aresufficient to do so. It is only the ultimate issue in a circumstantial case that must beproved to the required standard. The Crown is not required to prove separately each16 R v Sullivan at [404], adopting R v Gunthorp [2003] 2 NZLR 433 (CA) at [142]. See also, R vDouglas [2012] NZHC 1746 at [16].17 Edwardson R [2017] NZCA 618 at [77] and R v Sullivan at [403].18 R v Seekamut CA82/03, 10 July 2003 at [21].19 Edwardson R at [77].20 Commissioner of Police v de Wys [2016] NZCA 634 at [9].individual strand of evidence beyond reasonable doubt before the Court can take thatevidence into account.21Expert evidence[93] Both the Crown and Mr Bublitz called experts to offer opinions about whethercertain transaction ought to be disclosed as related party advances. They also providedviews about the application of relevant accounting standards. Their opinions are eachentitled to considerable weight.[94] Expert witnesses are permitted to give opinions on subjects within their areaof expertise if the fact-finder at trial "is likely to obtain substantial help from theopinion of understanding other evidence in the proceeding or in ascertaining any factthat is of consequence" to its determination.22 While an expert opinion may berendered on the ultimate issue in a proceeding,23 it is not determinative. It is for meto determine how much weight or importance I should give to the opinions offered bythe experts, or whether they should be accepted or rejected, in the context of all theevidence I have heard.[95] My approach to the expert evidence is to evaluate what both Mr Lee, theCrown's expert witness, and Mr Hucklesby, the expert witness called by Mr Bublitz,have said and to consider whether their evidence is helpful to me in resolving thefactual questions arising for decision. I acknowledge that, to the extent that each ofthem referred to documents, they accepted that they were providing assistance froman accounting perspective, and were not purporting to give evidence on questions oflaw. Mr Hucklesby inadvertently overstepped the proper limits of the scope of theopinions he was entitled to express, by giving his view on whether there was evidenceof Mr Bublitz's control of Viaduct. I rejected that evidence as inadmissible. In anyevent, it was not founded on a proper approach to the standards, being basedprincipally on the absence of any documentary proof. I have ignored that part of hisevidence.21 At [10]. And see Thomas v R [1972] NZLR 34 (CA) at 38.22 Evidence Act 2006, s 25(1).23 Evidence Act 2006, s 25(2)(a).Separate trials and verdicts[96] In the context of this case, although several charges have been heard together,it was necessary for me to consider and decide each charge separately. Generallyspeaking, it is necessary to avoid assuming that simply because a jury or a judge sittingalone has come to a certain view as to the proof of the Crown's case in respect of oneof the charges, the same conclusion should necessarily follow in respect of any one ormore of the others. In this case, as I have said, all but one of the charges necessarilyinvolved a common consideration of the single element of Mr Bublitz's control ofViaduct, which has proved to be determinative. But in addressing that issue I wasmindful that for each charge the question was whether Mr Bublitz had control at thetime of the events giving rise to the particular charge. I also bore in mind the changeof shareholding in September 2009 when Mr McKay acquired 51 per cent of the sharesin Phoenix Finance Limited.[97] A criminal trial in which there are multiple defendants and multiple chargesinvolves the joint conduct of several separate trials, for obvious reasons ofconvenience. But I have been required consider the position of each defendant, andeach charge faced by him, separately. This principle is particularly important becauseI have been urged by defence counsel to ensure that documents are only used againsta particular defendant if properly admissible against him.The corporate structure[98] Because it is not in dispute, it is convenient to adopt from the Crown's openingsubmissions a brief discussion of the corporate set-up for the Hunter Capital Groupincluding the three main entities and the related companies which undertook thevarious projects in which the group was engaged. The group comprised three mainentities: Hunter Capital Group Limited; Hunter Capital Property Trust and HunterCapital Limited. The ultimate owner of the companies was Mr Bublitz's family trust,the Nicholson Trust.[99] Hunter Capital Limited was the Group's services arm, providing managementservices to various entities. It controlled Hunter's operations as lessee (from HunterCapital Group Limited) of their premises at 6 Viaduct Harbour Avenue and owner ofHunter's plant and equipment. Hunter Capital Property Trust Limited ownedMr Bublitz's home on Marine Parade, Herne Bay, and held shares in the Northgatedevelopment. Hunter Capital Group Limited was the main entity responsible forHunter's various projects, including Northgate/Silverdale; Docklands;NKE/Helensville; Hilltop/Kawakawa and Homebush/Cashmere/Khandallah, all ofwhich are the subject of charges and which are described more fully in the next section.By 2008, Mr Bublitz had built up, through Hunter, a large portfolio of assets, on paperat least. As at 31 March 2008, the Group's total equity was just short of $20 millioncomprised largely of illiquid assets including shares in, or loans to, associated entitieswhich developed properties that Mr Bublitz ultimately owned and controlled.The projects[100] In order to give an indication of the nature of the various projects undertakenby the Hunter entities, Viaduct's and Mutual's dealings with which have given rise tothe charges, I have again adopted the largely undisputed summary from thesubmissions of counsel for the Crown.Homebush/Cashmere/Khandallah[101] Homebush Trustees Limited was the entity responsible for the CashmereEleven Project, a Hunter property development in Lakshmi Place, KhandallahWellington, undertaken as a joint venture with Mr John Babbington. Mr Babbington,was a director of the trustee of Mr Bublitz's personal trust, Nicholson Trust Limited,with Mr Morrison, the Hunter Group accountant. It is the Crown's case, however, thatMr Bublitz largely controlled the Homebush/Cashmere project as a joint venture withMr Babbington and that in terms of the New Zealand accounting standards hecontrolled Homebush Trustees Limited. Homebush Trustees Limited was the trusteeof the Cashmere 11 Trust in respect of which Mr Bublitz had power of appointment.Mr Bublitz characterised Homebush as an "off-balance sheet special purpose vehicle"for the Cashmere Eleven Project.Dockland Holdings Limited[102] Dockland Holdings Limited owned the ground lease for Sheds 19-20 and 22-24 at Princess Wharf, Auckland. The shares were held by a number of different people,including Mr Bublitz. Although the shares appear to have been valuable, they did notpay dividends or generate any income. The transfer of funds by Viaduct to the HunterGroup in exchange for the acquisition of the Docklands shares is the basis of Charge 2.The transfers of funds were made in April, May and June 2009 respectively.Northgate/Silverdale Project[103] The Northgate/Silverdale Project was for the development of bare land inSilverdale, Auckland. The intention was to have 9.6 ha of the 12.9 ha site rezoned intoindustrial land and to build a Business Park. Mr Bublitz was one of Northgate'sDirectors. He provided a personal guarantee for its lending from Kiwibank as did histrustee, Nicholson Trust Limited. Shares in the development were held by the HunterCapital Property Trust, which also owned Mr Bublitz's home. The Crown's case isthat Mr Bublitz controlled the Northgate entity (Northgate Business Park Stage 2Limited) at all material times. Following a public subscription for shares in thecompany, Hunter was left with around $1.8 million worth of shares. To convert thevalue of those shares into cash for Hunter, Mr Bublitz arranged for associates ofHunter Group executives to enter into loan agreements with Hunter for $600,000 inorder to acquire 750,000 shares each (paid up to 80 per cent). Recourse under theloans was limited to the Northgate shares and the borrowers did not provide a personalguarantee. The loan to a Mr Bruce was purchased from Hunter by Priority FinanceLimited on 13 February 2009, prior to the acquisition of that company by Mr Wevers,and the loans to a Mr Ebert and a Mr Roseneder were acquired by Viaduct on16 February 2009 using the investor funds it had on hand.The Hilltop/Kawakawa project[104] Through the Kawakawa Dairy Trust, Mr Bublitz and his father, Neville, ownedan under-performing dairy farm at Kinloch, Lake Taupo. The beneficiaries of the Trustwere Mr Bublitz's Nicholson Trust, Hobson Investment Trust and Hunter CapitalProperty Trust. Mr Bublitz was a Director of Kawakawa's trustee (the KawakawaDairy Trust Limited) until 13 May 2010, as was Lance Morrison (until10 February 2009). Kawakawa borrowed money from Kiwibank and SouthCanterbury Finance. By late 2008 the farm was not performing well and the Trust wascoming under pressure from its lenders.[105] Part of the plan devised at the Pauanui meeting on 13 January 2009 was toconvert the dairy farm to a goat milking operation, with Mr McKay and Mr Chevintaking the lead on preparing a business plan as to how they could grow a 10,000-headherd to become operational in June 2009. It seems Mr Chevin had a particular interestin the project as he had grown up on a goat farm.[106] In May 2009, Mr Bublitz, Mr Wevers, Mr Chevin, Mr Neville Bublitz and aMr Peter Mackie met as the "Project Board" for the goat farm; Mr Chevin wasappointed project director to carry out the day-to-day activities of the project.However, Mr Chevin was a banned director. In an interview with the NationalEnforcement Unit of the Ministry of Economic Development in November 2010,Mr Bublitz accepted that it was he, rather than Mr Chevin, who made the keydecisions. Hilltop Ridge Farms Limited was formed as an "off balance sheet specialpurpose vehicle" for the project and Mr Mackie was appointed sole director andshareholder. Mr Mackie, an experienced farmer, became involved because of hisfriendship with Mr Wevers. He resigned as a director and relinquished his shares inSeptember 2009 when Mr Wevers resigned as a director of Viaduct and sold 51% ofhis shares in Phoenix to Mr McKay. An associate of Mr Chevin, Mr Peter Hill,acquired Mr Mackie's directorship and shares but contributed no funds. Mr Hillregarded his involvement as a short term one, following discussions he had had withMr Bublitz and Mr McKay. Mr McKay conceded in evidence that his view ofMr Hill's involvement at that time was that he was "a puppet shareholder-director".Both Viaduct and Mutual advanced funds to the Hilltop project.NKE/Awaroa/Helensville project[107] NKE Trust Limited was the owner of a bare section of 120 ha at 134 AwaroaRoad, Helensville for the benefit of a Hunter company, Noske Kaeser EngineeringLimited. It was Mr Bublitz's plan to convert the farm into a number of lifestyle blocks.Morrison Creed Trustee 2008 Limited was NKE Trust's sole shareholder andMr Bublitz was its sole director until 17 June 2009. NKE Trust had been establishedin 2007 to enable NKE Limited to obtain financing for the development project.Mr Bublitz was a director of NKE Limited until 23 April 2009. NKE's financialposition was unhealthy and, as discussed at the Pauanui meeting on 13 January 2009,it was suggested that the property would have to be sold if development funding wasnot secured by 31 March that year. It was suggested that in order to obtain financingfrom the proposed finance company a friend of Mr Bublitz, Mr Dean Franklin, would"front the deal to get the loan from FinCo".[108] In promoting the idea to Mr Franklin, Mr Bublitz explained that in order toobtain funding for the project he needed to take NKE off the balance sheet and havethe new finance company lend NKE the money so it was not treated as a related partyloan. Mr Bublitz told Mr Franklin that he was not asking him to put up a personalguarantee as he had already provided a personal guarantee to the bank for the funding.He said, however, that what he needed was someone to become the soleshareholder/director of NKE Trust Limited (the company which owned the land) andto be seen as effectively controlling that entity other than Mr Bublitz. Mr Franklinbecame a director of NKE on 17 June 2009, although Mr Bublitz retained the right toremove Mr Franklin from that position.The chargesTheft by a person in a special relationship[109] The predominant charge faced by the defendants alleges theft by a person in aspecial relationship under s 220 of the Crimes Act 1961. The section provides:220 Theft by person in special relationship(1) This section applies to any person who has received or is in possessionof, or has control over, any property on terms or in circumstances thatthe person knows require the person—(a) to account to any other person for the property, or for anyproceeds arising from the property; or(b) to deal with the property, or any proceeds arising from theproperty, in accordance with the requirements of any otherperson.(2) Every one to whom subsection (1) applies commits theft whointentionally fails to account to the other person as so required orintentionally deals with the property, or any proceeds of the property,otherwise than in accordance with those requirements.(3) This section applies whether or not the person was required to deliverover the identical property received or in the person's possession orcontrol.(4) For the purposes of subsection (1), it is a question of law whether thecircumstances required any person to account or to act in accordancewith any requirements.....[110] Mr Bublitz is charged as the principal offender in ten charges under s 220;Mr McKay is charged as a secondary party to Mr Bublitz's alleged offending on threeoccasions, and Mr Blackwood on four.24 The elements which the Crown must provebeyond reasonable doubt have been explained in a number of decisions in the Courtof Appeal and this Court, and are not in dispute.25 Putting the elements of the offenceinto the context of the case, for Mr Bublitz to be convicted as a principal offender, theCrown must prove beyond reasonable doubt that he:(a) had control over property, namely Viaduct's or Mutual's investors'funds (as the case may be) – s 220(1);(b) was under an obligation to deal with the funds in accordance with therestrictions on related party lending or other dealing in the Viaduct trustdeed or the Crown guarantee (as the case may be) – s 220(1)(b);(c) knew of that obligation – s 220(2); and(d) dealt with the funds in a manner that he knew and intended was inbreach of the relevant obligation.[111] It is obvious, of course, that Mr McKay and Mr Blackwood may be convictedunder s 220 as parties to any offending by Mr Bublitz only if Mr Bublitz is found24 Crimes Act 1961, s 66(1).25 Nesbit v R [2011] NZCA 285, [2011] 3 NZLR 4; R v Douglas [2012] NZHC 1467 and [2012]NZHC 1746; Tallentire v R [2012] NZCA 610, [2013] 1 NZLR 548; R v Whale [2013] NZHC 731.guilty of the offence. I accept the Crown's proposition, not disputed by the defendants,that on the charges under s 220 faced by Mr McKay and Mr Blackwood, the elementsthat the Crown must prove before they may be found guilty on those charges in thatway are that, for each transaction, the defendant:26(a) incited, abetted or assisted Mr Bublitz to steal Mutual investors' funds,by advising him which transactions should be made and assisting himto prepare the necessary documentation and carry them out;(b) intended to incite, abet or assist Mr Bublitz to steal Mutual investors'funds, knowing that:(i) Mr Bublitz had control over Mutual investor funds;(ii) was obliged to deal with them in accordance with therestrictions on related party lending contained in the Crownguarantee; and(iii) Mr Bublitz intentionally dealt with the funds in breach of therestrictions on related party lending contained in the Viaducttrust deed and Crown guarantee.[112] Whether Mr Bublitz had control over the investors' funds for the purposes ofs 220(1) turns on whether he was in a position to determine how the funds depositedwith either Viaduct or Mutual, as the case may be, would be dealt with.27 That is aquestion of fact to be determined in the particular circumstances of the case28 and it isnot necessarily answered by the position Mr Bublitz occupied in the company'sstructure.29 There has been no suggestion that Mr Bublitz did not have control overthe Mutual investors' funds; the real contest is whether he had control over investorfunds deposited with Viaduct.26 Ashin v R [2014] NZSC 153, [2015] 1 NZLR 493 at [82]–[83].27 R v Douglas [2012] NZHC 1746 at [202]–[203]; Cropp v R [2012] NZHC 2498 at [30].28 Cropp v R at [27]; R v Sullivan [2014] NZHC 2501 at [459]–[464]29 R v Whale [2013] NZHC 731 at [59].[113] On Charges 1 to 12, 14 and 15, for the purposes of proving that Mr Bublitzacted in breach of the related party restrictions in the Viaduct trust deed or the relevantCrown guarantee, the Crown must prove that Mr Bublitz had control over ViaductCapital in terms the accounting standards.30 That is, that he had, as NZ IAS 24 andNZ IAS 27 require:The power to govern the financial and operating policies of an entity soas to obtain benefits from its activities.[114] It follows that I accept the Crown's proposition that, if Mr Bublitz is found tohave been in control of Viaduct in terms of the accounting standards, that control willbe sufficient to prove control of Viaduct's investor funds under s 220(1). Defencecounsel did not disagree. Similarly, the concession that Mr Bublitz controlled Mutualin terms of the accounting standard is sufficient to establish control of Mutual'sinvestor funds.[115] I summarise the charges brought under s 220:Charge 1 alleges an offence by Mr Bublitz between 8 March 2009 and 10September 2009 in relation to loan advances made by Viaduct to HomebushTrustees Limited as trustee of the Cashmere Eleven Trust without consent ofthe trustee. It is said the advances amounted to related party loans becauseMr Bublitz controlled both Viaduct and Homebush.Charge 2 relates to the purchase by Viaduct from Hunter Capital Group and/orMorrison Creed (DHL) Trustee Limited of shares in Dockland HoldingsLimited between 14 April 2009 and 5 June 2009 without consent of the Viaducttrustee. The use of the Viaduct funds to purchase the shares resulted intransfers directly to Hunter Capital Group on 15 April 2009, 27 May 2009 and4 June 2009. It is alleged that each individual transfer amounted to a relatedparty transaction because Mr Bublitz controlled Viaduct, Hunter Capital Groupand the Morrison Creed trust, and also that each transfer exceeded 2% ofViaduct's total tangible assets (when aggregated with other related party30 On Charges 11 to 15, the Crown relies, to the extent that it is necessary for it to do so, on thealternative definition of control set out in the Mutual Crown guarantee.transactions in the preceding 12-month period), and thereby breached therequirement to obtain the trustee's consent.Charge 3 alleges that on or about 4 June 2009 Mr Bublitz dealt with theinvestor funds in Viaduct contrary to his obligations to the trustee, bytransacting the purchase by Viaduct from Hunter Capital Group of its loan toHomebush without the trustee's consent, the purchase being both a relatedparty transaction and involving the acquisition of more than 2% of Viaduct'stotal tangible assets.Charge 5 alleges that, between 1 July 2009 and 31 March 2010, Mr Bublitzdealt with Viaduct's investor funds without the trustee's prior consent byprocuring Viaduct to redeem for cash capital notes held from time to time byHunter Capital Property Trust and/or the Hunter Capital Group on the basis ofan arrangement other than that set out in each capital notes certificate. It issaid that the capital notes were redeemed for cash on the direction or approvalof Mr Bublitz, but with such redemption amounting to a related partytransaction and also one exceeding 2% of Viaduct's total tangible assets inaggregate with preceding related party transactions.Charge 6 alleges that between 15 June 2009 and 4 November 2009 Mr Bublitzprocured loan advances by Viaduct to Hilltop Ridge Farms Limited without thetrustee's consent, the advances amounting to related party loans in thatMr Bublitz controlled both Viaduct and Hilltop.Charge 7 alleges that between 16 August 2009 and 30 April 2010, Mr Bublitzcommitted theft in respect of loan advances by Viaduct to NKE Trust Limitedwithout the trustees' consent, the advances amounting to related party loansbecause Mr Bublitz controlled both Viaduct and NKE.Charge 10 alleges that Mr Bublitz, between 25 January 2010 and11 February 2010, misused investor funds in Mutual Finance contrary to therequirements of the Crown under the replacement Crown guarantee dated8 December 2009, and that Mr McKay and Mr Blackwood were parties to thatoffending. The allegations relate to the purchase in two tranches by Mutualfrom Viaduct of the Homebush loan without the Crown's prior consent. It issaid consent was required because the transaction overall had a valueexceeding one per cent of Mutual's total tangible assets. It is also alleged thatit was a related party transaction because Mr Bublitz controlled both Viaductand Mutual in terms of the accounting standards and/or because Mr Bublitzwas able to exercise real or effective control, directly or indirectly, over eachcompany. Further, it is said that the requirements of the guarantee werebreached because an independent expert had not certified, prior to eachtransaction, that the transaction was on arms' length terms.Charge 11 alleges that Mr Bublitz misused investor funds in Mutual Financeby procuring the purchase by Mutual from Viaduct of the Bruce (Northgate)loan in breach of the replacement Crown guarantee in that the loan exceeded1% of Mutual's total tangible assets, it was a related party transaction and hadnot previously been certified by an expert as being on arms' length terms.Messrs McKay and Bradford are alleged to have been knowing parties to thattransaction.Charge 12 alleges that Mr Bublitz, between 5 April 2010 and 27 April 2010,misused investor funds in Mutual in relation to the purchase by Mutual fromViaduct of the Hilltop loan without the prior written consent of the Crown andtherefore in breach of the replacement Crown guarantee. The transaction wasalleged to have a value exceeding 1% of Mutual's total tangible assets, it waswith a related party of Mutual and that it had not been previously certified asbeing an arms' length transaction. Again, Messrs McKay and Blackwood arealleged to have been knowing parties to that offending.Charge 13 alleges that Mr Bublitz misused investor funds in Mutual in breachof the replacement Crown guarantee in respect of loan advances by Mutual toHilltop Ridge Farms Limited without the prior written consent of the Crown.Again, it is said that the loan had a value exceeding 1% of Mutual's totaltangible assets, that it was a related party transaction and that it had not beencertified as being an arms' length transaction. Mr McKay and Mr Blackwoodare alleged to be knowing parties to that offence.False statement by a promoter[116] Mr McKay faces one charge under s 242 of the Crimes Act of making a falsestatement as a promoter in respect of the Viaduct prospectus issued on 3 March 2009,and Mr McKay and Mr Blackwood are charged under that section with making a falsestatement as a promoter in publishing Viaduct's 9 October 2009 prospectus.Mr Bublitz is also charged under that section in respect of Mutual Finance Limited's3 March 2010 prospectus and the amendment of that prospectus dated 28 April 2010.[117] Section 242 materially provides as follows:242 False statement by promoter, etc(1) Every one is liable to imprisonment for a term not exceeding 10 yearswho, in respect of any body, whether incorporated or unincorporatedand whether formed or intended to be formed, makes or concurs inmaking or publishes any false statement, with intent—(a) to induce any person, whether ascertained or not, to acquireany financial product within the meaning of the FinancialMarkets Conduct Act 2013 .(2) In this section, false statement means any statement in respect ofwhich the person making or publishing the statement—(a) knows the statement is false in a material particular; or(b) is reckless as to whether the statement is false in a materialparticular.[118] There has been no dispute by defence counsel about the Crown's propositionthat to prove that a defendant made a false statement or statements in a companyprospectus, the Crown must prove beyond reasonable doubt:31(a) that the defendant made or concurred in making a particular statementin a prospectus;(b) the statement was false in a material particular;31 R v Sullivan [2014] NZHC 2501 at [431].(c) the defendant knew the statement to be false in a material particular, orwas reckless as to that possibility; and(d) the defendant intended to induce investors to subscribe for the debtsecurities on offer.[119] A prospectus is a living document in the sense that once it is issued and is inthe marketplace it is always "speaking" to potential investors in present day terms.I accept Mr Johnstone's proposition, therefore, that a defendant will be criminallyliable if he became aware during the period of publication of a prospectus that astatement was untrue or had become untrue but failed to correct it by way ofamendment to that effect.32[120] A statement in an offer document or advertisement will be false if it is a lie, ahalf-truth or if, by the omission of any material particular, it conveys a falseimpression.33 A statement will be material if it is likely to influence an investor'sdecision to invest.34[121] The particulars of the charges brought under s 242 of the Crimes Act are these:Charge 4 alleges that Mr McKay, between 2 March 2009 and 8 June 2009made or concurred in the making or publishing of a false statement in Viaduct's3 March 2009 Prospectus because it asserted that Viaduct would focus onproviding funding packages to a diverse client base spread across a range ofindustries and classes, the transactions which were the subject of Charges 1 to3 were undertaken for the benefit of Mr Bublitz and entities controlled by himand not "a diverse client base". Second, in the alternative, it alleges thatalthough investors were alerted to the restrictions on related party lending inthe Viaduct Trust Deed and the Crown guarantee, one or more of thetransactions which are the subject of Charges 1 to 3 breached the terms ofViaduct's Trust Deed as alleged in those charges.32 See R v Petricevic [2012] NZHC 665 at [105]; R v Sullivan [2014] NZHC 2501 at [435].33 R v Sullivan at [437], citing R v Douglas [2012] NZHC 1467 at [198].34 R v Sullivan at [440]-[441].Charge 8 alleges that Messrs McKay and Blackwood, between 8 October 2009and 1 January 2010 made or concurred in the making or publishing of falsestatements in Viaduct's Prospectus dated 9 October 2009 because thetransaction the subject of charges 1 to 3 and 5 to 7 were not made to a diverseclient base, were in breach of Viaduct's Trust Deed requirements relating torelated party loans and transactions, or that there was an arrangement thatcapital notes held from time to time by Hunter were redeemed on the directionor approval of Mr Bublitz, contrary to the arrangements set out in the CapitalNotes Certificates.Charge 14 alleges that Mr Bublitz, between 2 March 2010 and 28 April 2010concurred in the making or publishing the false statement in Mutual's3 March 2010 prospectus. The Crown alleges that the prospectus drewparticular attention to Mutual having entered into the initial Crown guaranteeand the replacement Crown guarantee, and to a wide range of risks pertainingto Mutual, including the risk of the Crown guarantee Scheme expiring on12 October 2010 without being extended or replaced. It is said, however, thatthe prospectus failed to disclose the breaches of the Crown guarantees thesubject of charges 10 to 13 and the consequent risk of the replacement Crownguarantee being withdrawn at short notice, thereby affecting Mutual's businessoperations disadvantageously.Charge 15 alleges that Mr Bublitz, between 27 April 2010 and 14 July 2010made or concurred in the making or publishing of a false statement in Mutual's3 March 2010 prospectus as amended by the memorandum dated28 April 2010. As for Charge 14, the Crown alleges that the prospectus drewparticular attention to Mutual having entered into the initial Crown guaranteeand the replacement Crown guarantee, and to a wide range of risks pertainingto Mutual, including the risk of the Crown guarantee Scheme expiring on12 October 2010 without being extended or replaced. It is said, however, thatthe prospectus failed to disclose the breaches of the Crown guarantees thesubject of charges 10 to 13 and the consequent risk of the replacement Crownguarantee being withdrawn at short notice, thereby affecting Mutual's businessoperations disadvantageously.False statement to a trustee[122] Mr McKay and Mr Blackwood face a charge that they made a false statementin the December 2009 quarterly report to the trustee for Viaduct Capital debentureholders. Section 377(2) of the Companies Act 1993 materially provides:377 False statements...(2) Every director or employee of a company who makes or furnishes, orauthorises or permits the making or furnishing of, a statement or reportthat relates to the affairs of the company and that is false or misleadingin a material particular, to—(a) A trustee for debenture holders of the company knowing it to be false or misleading, commits an offence, and is liableon conviction to the penalties set out in section 373(4) of this Act.[123] There is no dispute that a defendant is guilty of that offence if the Crown provesbeyond reasonable doubt:(a) as a director of Viaduct, they prepared and sent to Viaduct's trustee areport related to Viaduct's affairs;(b) the report was false or misleading in a material particular; and(c) they knew the report to be false or misleading.[124] The essence of the false statement allegations by the Crown in the charge unders 377(2) of the Companies Act is that the report to the trustee was deliberately false ormisleading in that it concealed or failed to disclose loans or other transactions that thedefendants knew were related party transactions because, as they also knew,Mr Bublitz was in control of Viaduct Capital Limited in terms of NZ IAS 24.The question trails[125] It is recognised as best practice in New Zealand for judges presiding overcriminal jury trials to provide the jury with a question trail or decision path designedto focus the jury's attention, in considering its verdict, on the essential findings of factwhich must be made on the charge they are required to decide. The questions aredirected specifically at the facts of the particular case, and are structured in such a wayas to obviate the need for the jury to consider what might sometimes be difficultquestions of law about the elements of the charge.[126] Hearing this case without a jury, I considered I would be assisted by thediscipline of preparing and following a question trail setting out what the Crown wasrequired to prove beyond reasonable doubt for a defendant to be found guilty of acharge. In preparing the question trail, I was assisted by the submissions I receivedfrom counsel. Although it appeared to me that, after discussion, there was a generalconsensus between counsel as to the content of the respective question trails, it wasfor me to determine the final form that was appropriate for each charge.Charges 1, 6 and 7 against Mr Bublitz – Theft by a person in a special relationship[127] Mr Bublitz is charged under s 220 of the Crimes Act with theft in a specialrelationship by procuring Viaduct to make loan advances in breach of the restrictionsin the Viaduct trust deed. To illustrate the Crown's approach, Charge 1 in the CrownCharge Notice alleges:That PAUL NEVILLE BUBLITZ, between 8 March 2009 and 10 September2009, at Auckland or elsewhere in New Zealand, had control over property,namely investor funds in Viaduct Capital Limited (Viaduct), on terms or incircumstances that he knew required him on behalf of Viaduct to deal with theproperty in accordance with the requirements of Prince & Partners TrusteeCompany Limited (Prince) as trustee under a Debt Security Trust Deed dated6 October 2006 (Viaduct's Trust Deed), and intentionally dealt with theproperty otherwise than in accordance with those requirements.ParticularsLoan advances by Viaduct to Homebush Trustees Limited (Homebush) astrustee of the Cashmere Eleven Trust without Prince's consent, such loanadvances amounting to a Related Party Loan (in that in terms of NZ IAS 24Mr Bublitz controlled both Viaduct and Homebush).[Refer cl 6.4.3.2 of Viaduct's Trust Deed][128] Considering the elements of the offence and the matrix of alleged factsunderpinning the Crown's allegations, the following question trail will lead to adecision on the appropriate verdict on this charge:Has the Crown proved beyond reasonable doubt that, between 8 March 2009and 10 September 2009, at Auckland or elsewhere in New Zealand:1. Mr Bublitz had control over Viaduct's investor funds that wererequired to be dealt with in accordance with Viaduct's trust deed?2. On any one of the occasions alleged (being 9 March 2009, 10 June2009, 10 July 2009 and 9 September 2009), Mr Bublitz intentionallydealt with those funds by procuring Viaduct to make a loan advanceto Homebush Trustees Limited?3. At the time of that advance, Viaduct and Homebush were relatedparties under Viaduct's trust deed because Mr Bublitz controlled bothViaduct and Homebush in terms of NZ IAS 24?4. The trustee did not give its prior written consent to that advance?5. At the time of that advance, Mr Bublitz knew that:(a) Viaduct's investor funds were required to be dealt with inaccordance with restrictions on related party lendingcontained in Viaduct's trust deed; and(b) the advance breached those restrictions?The question trail is structured so that, if the answer to all of those questions is "Yes",Mr Bublitz must be found guilty of Charge 1. If the answer to any one of thosequestions is "No", Mr Bublitz must be found not guilty of that charge.[129] A similar question trail, addressing the particular facts, will be applied toCharges 6 and 7 against Mr Bublitz which also allege breaches of the trust deed inrelation to loans and are in terms similar to Charge 1.Charges 2, 3, 5, 8, 10, 11, 12, and 13 against Mr Bublitz; Charges 10, 11 and 12against Mr McKay; Charges 10, 11, 12, and 13 against Mr Blackwood – Theft by aperson in a special relationship[130] Mr Bublitz is also charged with theft in a special relationship by procuringViaduct to enter into transactions other than the making of loan advances in breach ofthe restrictions in the Viaduct trust deed or the replacement Crown guarantee: Charges2, 3, 5, 8, 10, 11, 12, and 13. The question trail is complicated by the requirement thatthe Crown must prove not only that the transaction amounted to a related partytransaction on account of Mr Bublitz's control of Viaduct and the other entity orentities involved, but also that the transaction breached the cap on related partytransactions set out in the trust deed or Crown guarantee. Charges 10, 11, 12 and 13are further complicated by Mr McKay and Mr Blackwood (or Mr Blackwood alone)being charged as parties to that alleged offending. The question trail must alsoaccommodate the alternative allegations of control available under the Mutual Crownguarantee.[131] The principles and the core ingredients are the same for this group of charges.I set out Charge 12 and the question trail for it as an example:That PAUL NEVILLE BUBLITZ, BRUCE ALEXANDER McKAY andRICHARD TIMOTHY BLACKWOOD, between 5 April 2010 and 27 April2010, at Auckland or elsewhere in New Zealand, had control over property,namely investor funds in Mutual, on terms or in circumstances that they knewrequired Mr Bublitz on behalf of Mutual to deal with the property inaccordance with the requirements of the Crown under the replacement Crownguarantee, and intentionally dealt with the property otherwise than inaccordance with those requirements.ParticularsThe purchase by Mutual from Viaduct of the Hilltop loan without the priorwritten consent of the Crown, such purchase involving a transaction (or seriesof linked or related transactions):- having a value exceeding one per cent of Mutual's Total Tangible Assets;- to which a Related Party of Mutual (other than a wholly owned subsidiaryof Mutual) was a party (in that in terms of 1.2(f)(i) or (ii) of the replacementCrown guarantee Mr Bublitz controlled both Viaduct and Mutual in terms ofGAAP/NZ IAS 24 and/or Mr Bublitz being able to exercise real or effectivecontrol, directly or indirectly, over each company or over a material part ofeach company's business or affairs (whether pursuant to a contract, anarrangement or an understanding, as a result of the ownership or control ofsecurities or other interests in or issued by each company, or otherwise)); and- not first certified to the Crown in writing, by an independent expert approvedby the Crown in writing, that the transaction was, in the opinion of the expert,on arms' length terms.[Refer cl 6.2(b) of the replacement Crown guarantee]Question trailHas the Crown proved beyond reasonable doubt that, between 5 April 2010and 27 April 2010, at Auckland or elsewhere in New Zealand:1. Mr Bublitz had control over Mutual's investor funds which wererequired to be dealt with in accordance with the Crown guaranteedated 8 December 2009?2. Mr Bublitz intentionally dealt with those funds by procuring Mutualto purchase the Hilltop loan from Viaduct?3. At the time of the purchase, Viaduct and Mutual were related partiesunder the Crown guarantee because Mr Bublitz:a. controlled both Viaduct and Mutual in terms ofGAAP/NZ IAS 24; orb. Mr Bublitz was able to exercise real or effective control,directly or indirectly, over each company or over a materialpart of each company's business or affairs (whether pursuantto a contract, an arrangement or an understanding, as a resultof the ownership or control of securities or other interests inor issued by each company, or otherwise)?4. The value of the purchase exceeded 1% of Mutual's Total TangibleAssets?5. An independent expert approved by the Crown in writing had not firstcertified that the purchase was on arms' length terms?6. At the time of the purchase, Mr Bublitz knew that:a. Mutual's investor funds were required to be dealt with inaccordance with restrictions on related party transactionscontained in the Crown guarantee; andb. the purchase breached those restrictions.7. At the time of the purchase, Mr McKay and Mr Blackwood (as thecase may be):a. had incited, abetted or assisted Mr Bublitz to procure Mutualto purchase the loan from Viaduct; andb. had intended to incite, abet or assist Mr Bublitz to procureMutual to purchase the loan from Viaduct; andc. knew:i. Mr Bublitz had control over Mutual's investor funds;andii. Mutual's investor funds were required to be dealt within accordance with restrictions on related partytransactions contained in the Crown guarantee; andiii. Mr Bublitz intentionally dealt with those funds byprocuring Mutual to purchase the loan from Viaduct;andiv. the purchase breached those restrictions?[132] The question trail is structured so that, if the answer to all of Questions 1 to 635is "Yes", Mr Bublitz must be found guilty of Charge 12. If the answer to any one ofQuestions 1 to 6 is "No", Mr Bublitz must be found not guilty of that charge. If theanswer to all of Questions 1 to 7 is "Yes", Mr McKay or Mr Blackwood, as the casemay be, must be found guilty of Charge 12. If the answer to any one of Questions 1to 7 is "No", Mr McKay or Mr Blackwood, as the case may be, must be found notguilty of that charge.[133] Charge 13, also alleging theft by Mr Bublitz under s 220, is in similar terms toCharge 12 except that, rather than alleging that the relevant transactions were relatedparty loans because Mr Bublitz controlled both Viaduct and Mutual, the relatedness isalleged to be Mr Bublitz's control of both Mutual and Hilltop Ridge Farms Limited,to whom the loans were advanced.Charge 4 against Mr McKay; Charge 8 against Mr McKay and Mr Blackwood;Charges 14 and 15 against Mr Bublitz – Making a false statement as a promoter[134] To illustrate the approach required for the charges of making a false statementas a promoter under s 242 of the Crimes Act, I set out the charge and question trail forCharge 4 against Mr McKay as follows:That BRUCE ALEXANDER McKAY, between 2 March 2009 and 8 June2009, at Auckland or elsewhere in New Zealand, in respect of Viaduct, madeor concurred in the making or publishing of a false statement, with intent toinduce any person to subscribe to any security within the meaning of theSecurities Act 1978.ParticularsViaduct's 3 March 2009 prospectus, which amounted to a false statementbecause, notwithstanding the assertions on pages 13 and 14 under the heading"Policies" and on page 20 relating to the Trust Deed's prohibition of relatedparty lending without trustee consent, the transactions the subject of Charges1 to 3 were undertaken:- in contradiction of the stated "Policies", with and for the benefit ofMr Bublitz and entities controlled by him, and not "a diverse client base"; and- in breach of Viaduct's Trust Deed requirements relating to Related PartyTransactions and Related Party Loans.35 Bearing in mind that the Crown needs to prove only one of the alternative elements in Question3.Question trailHas the Crown proved beyond reasonable doubt that, between 2 March 2009and 8 June 2009, at Auckland or elsewhere in New Zealand:1. Mr McKay made, or concurred in Viaduct making or publishingViaduct Capital Limited's 3 March 2009 prospectus, which containedassertions that:(a) Viaduct's credit exposure strategy focuses on providingfunding packages over a finite period of generally between sixmonths to three years, to a diverse client base spread across arange of industries and classes (page 13); and(b) Viaduct's Trust Deed imposes a restriction on related partylending, limiting related party transactions to 2% of theCompany's Total Tangible Assets (page 14); and(c) The Crown guarantee also restricts related party lending to1% of Total Tangible Assets (page 14); and(d) Viaduct's Trust Deed prohibits the Company from enteringinto a Related Party Loan without the prior written consent ofthe Trustee (page 20).2. At the time of making or concurring in the making or publishing ofthe prospectus, Mr McKay intended to induce any person to subscribeto any security within the meaning of the Securities Act 1978?3. At any time during the periods in which the prospectus was registered,it amounted to a false statement in that Mr McKay knew, or wasreckless as to whether, the prospectus was false in a material particularbecause:(a) the transactions the subject of Charges 1 to 3 were undertakenfor the benefit of Mr Bublitz and entities controlled by himand not "a diverse client base"; or(b) one or more of the transactions the subject of Charges 1 to 3was or were undertaken in breach of Viaduct's Trust Deed'srequirements as alleged in Charges 1 to 3.If the answer to all of those questions is "Yes", Mr McKay must be found guilty ofCharge 4. If the answer to any one of those questions is "No", Mr McKay must befound not guilty of that charge.[135] A similar question trail applies for Charge 8 against Mr McKay andMr Blackwood. It applies also for Charges 14 and 15 against Mr Bublitz, although theallegations relate to alleged breaches of Mutual's 3 March 2010 prospectus and theamended prospectus of 28 April 2010. Charge 14 and the question trail, for example,are as follows:That PAUL NEVILLE BUBLITZ, between 2 March 2010 and 28 April 2010,at Auckland or elsewhere in New Zealand, in respect of Mutual, made orconcurred in the making or publishing of a false statement, with intent toinduce any person to subscribe to any security within the meaning of theSecurities Act 1978.ParticularsMutual's 3 March 2010 prospectus, which amounted to a false statementbecause:(a) The prospectus drew particular attention to Mutual having entered theinitial Crown guarantee and the replacement Crown guarantee (refer:pages 4, 6, 10, 12 and 44).(b) The prospectus referred at pages 14 to 16 to a wide range of riskspertaining to Mutual, including the risk of the Crown guarantee schemeexpiring on 12 October 2010 without being extended or replaced.(c) The prospectus failed to disclose:- any of the breaches of the initial Crown guarantee and the replacementCrown guarantee the subject of Charges 10 to 13; and- the consequent risks of the replacement Crown guarantee beingwithdrawn at short notice, and of Mutual's business operations beingdisadvantageously affected.Question trailHas the Crown proved beyond reasonable doubt that, between 2 March 2010and 28 April 2010, at Auckland or elsewhere in New Zealand:1. Mr Bublitz made, or concurred in Mutual making or publishingMutual Finance Limited's 3 March 2010 prospectus?2. At the time of making or concurring in the making or publishing ofthe prospectus, Mr Bublitz intended to induce any person to subscribeto any security within the meaning of the Securities Act 1978?3. At any time during the period in which the prospectus was registered,it amounted to a false statement in that Mr Bublitz knew, or wasreckless as to whether, the prospectus was false in a material particularbecause it failed to disclose:(a) any breaches of the replacement Crown guarantee as allegedin charges 10 to 13; and(b) the consequent risks of the replacement Crown guaranteebeing withdrawn at short notice, and of Mutual's businessoperations being disadvantageously affected?Charge 9 against Mr McKay and Mr Blackwood – Making a false statement to atrustee[136] Charge 9 against Mr McKay and Mr Blackwood, of making a false statementto a trustee, reads as follows:That BRUCE ALEXANDER McKAY and RICHARD TIMOTHYBLACKWOOD, between 28 January 2010 and 3 February 2010, at Aucklandor elsewhere in New Zealand, as directors of Viaduct, made or furnished, orauthorised or permitted the making or furnishing of, a statement to a trusteefor debenture holders of the company, that related to the affairs of the companyand was false or misleading in a material particular, knowing it to be false ormisleading.ParticularsViaduct's Directors' Quarterly Report as at December 2009, which amountedto a false or misleading statement because notwithstanding the assertions atparagraph 2.4 and at paragraph 4 as to Related Party Transactions and RelatedParty Loans, the transactions and lending the subject of Charges 1 to 3, and 5to 7, were undertaken in breach of Viaduct's Trust Deed requirements relatingto Related Party Transactions and Related Party Loans.[137] The question trail for Charge 9 is:Has the Crown proved beyond reasonable doubt that, between 28 January2010 and 3 February 2010, at Auckland or elsewhere in New Zealand:1. The defendant being considered, as a Viaduct Capital Limiteddirector, made or furnished, or authorised or permitted the making orfurnishing, of the statements set out at paragraphs 2.4 and 4 (as torelated party transactions and related party loans) of the December2009 quarterly report?2. The statements at paragraphs 2.4 and 4 of the December 2009quarterly report were statements to the trustee for debenture holdersof Viaduct and related to the affairs of Viaduct?3. One or more of the transactions the subject of Charges 1 to 3 and 5 to7 was undertaken in breach of Viaduct's Trust deed's requirementsrelating to related party transactions and related party loans?4. At the time of the making or furnishing of the statements, thedefendant you are considering knew for the reason set out inQuestion 3 above that that statement was false or misleading in amaterial particular?Control of Viaduct by Mr Bublitz[138] It can be seen from the analysis of the charges just undertaken that it a commonelement in all charges except Charge 13 that Mr Bublitz was in control of ViaductCapital Limited in terms of NZ IAS 24. That element provides the foundation for theCrown's assertion in each case of alleged theft under s 220 of the Crimes Act that theconduct alleged amounted to a related party dealing, either by way of a loan advance36or another transaction such as the purchase of shares,37 the purchase of a loan,38 or theredemption of capital notes.39 Proof of the charges alleging the making of a falsestatement as a promoter40 turns on the Crown having proved at least one of the relatedcharges under s 220 of the Crimes Act, as one of the alternative bases for the offenceas alleged by the Crown. Similarly, on the charges against Mr McKay andMr Blackwood of making a false statement to the Viaduct trustee, the Crown mustprove the defendant to be guilty at least one of the s 220 charges alleged.[139] For Charge 13, it is necessary for the Crown to prove that Mr Bublitz was incontrol of Mutual Finance Limited, rather than Viaduct, but that element is concededby Mr Lance on behalf of Mr Bublitz and not disputed on behalf of the otherdefendants. The contest over the relatedness element in Charge 13 is whether theCrown has proved that Mr Bublitz was in control of Hilltop Ridge Farms Limited.The nature of the Crown's case[140] The evidence and submissions presented by the Crown provide a detailedaccount and analysis of the conduct of the business of the Hunter Group, and of thetwo finance companies, Viaduct Capital and Mutual Finance. The Crown'spropositions comprise allegations that Mr Bublitz was the principal driver anddecision-maker in a deliberate scheme to fund the property development activities ofthe various entities in the wider Hunter Group, all ultimately controlled by Mr Bublitz,out of funds subscribed by the finance companies over which he also had ultimatecontrol.36 Charges 1, 6 and 7.37 Charge 2.38 Charges 3, 10, 11 and 12.39 Charge 5.40 Charges 4, 8, 14 and 15.[141] Counsel for the Crown have devoted considerable attention to an analysis ofthe hundreds of emails exchanged and memoranda produced by the defendants andtheir associates, particularly key players such as Mr Wevers and Mr Chevin, whoappears to have been a close associate of Mr Bublitz and instrumental in thepreliminary decision-making over the plans to acquire a finance company. The outlineof the scheme was said to have been devised by Mr Bublitz, Mr McKay andMr Chevin at the meeting in Pauanui on 13 January 2009. Much of the evidence ledby the Crown was devoted to establishing the extent to which the plans devised at thePauanui meeting were put into effect. The Crown's case also devotes considerableattention to the nature of the information provided to professional advisers from timeto time but particularly in January and early February 2009 when Mr Bublitz,Mr McKay and Mr Wevers had identified Priority Finance as a target which met thedesired criteria for acquisition. The focus of the Crown's argument in that regard hasbeen on the extent to which information relevant to the question of whether certainproposed dealings would amount to related party transactions was tailored in itspresentation by the defendants to ensure the desired outcome: that is, to receive andthen rely on advice that what was proposed would not require disclosure and the priorapproval of the finance company's trustee.[142] The Crown's evidence and submissions also contain a thorough analysis ofdocuments which are said to demonstrate a mindset of intentional breaches of theconstraints on related party transactions imposed by both the Viaduct trustee and theMutual Crown guarantee.[143] On the ubiquitous issue of whether Mr Bublitz had control of Viaduct, aprincipal foundation of the Crown's proposition is that decisions on behalf of Viaduct,concerning Viaduct's loans and other transactions with entities associated withMr Bublitz and the Hunter Group, were made in the interests of Mr Bublitz and hisother entities, not Viaduct. It is said that the decisions to enter the transactions underscrutiny were commercially unjustifiable from Viaduct's point of view. I am asked toinfer, therefore, that the only reasonably possible explanation for Viaduct's post-acquisition conduct is that there was an "abiding, secret arrangement" with Viaduct'sshareholders and directors ceding control of Viaduct to Mr Bublitz.[144] I have considered all of this material. It is abundantly clear that the defendantsunderstood, from an early stage of their involvement in the various transactions withwhich they were associated (bearing in mind that Mr Blackwood joined the enterpriselater than Mr Bublitz and Mr McKay), that they would not be in a position to carry outthe necessary fundraising to support the various Hunter projects through theacquisition of the two finance companies without working around the constraints ofthe related parties' provisions. Put at its simplest, the defence proposition in answerto the Crown's case is that it is not sufficient for the Crown to prove simply that thedefendants put in place structures to enable Viaduct or Mutual investor funds to bemade available to Hunter Group entities. It must satisfy the Court to the high standardof proof required that, on all but one of the charges, Mr Bublitz had control of Viaductat the time the transactions took place and that the defendants knew that thetransactions breached the related party restrictions for that reason.[145] The defendants emphasise the registered shareholding and directorship ofViaduct at the relevant times and submit that Crown has failed to prove an essentialelement of the charges; namely, that Mr Bublitz had control of Viaduct in terms of theaccounting standards or the replacement Mutual Crown guarantee. Where theaccounting standards are relied upon, the defence is that the Court cannot be satisfiedon the evidence that the only reasonable inference to be drawn from the proved factsis that there was a secret agreement between Mr Wevers and Mr Bublitz, which bothMr McKay and Mr Blackwood knew about, that Mr Bublitz had "the power to governthe financial and operating policies of [Viaduct] so as to obtain benefits from itsactivities."41[146] It is necessary, therefore, to first determine the meaning of "control" as definedin the relevant documents."Control" in terms of NZ IAS 24[147] As I have explained, the accounting standard NZ IAS 24 is relevant to allcharges. If the Crown has failed to prove beyond reasonable doubt that Mr Bublitzwas in control of Viaduct at the relevant times, the defendants must be acquitted on41 NZ IAS 24 at paragraph 9: the definition of "control".Charges 1 to 9, and Charges 10 to 15 must be considered by reference to the definitionof control in the Mutual Crown guarantee.The expert witnesses[148] In determining the meaning and application of NZ IAS 24, the accountingstandard relied upon by the Crown as the determinant of related party transactions forthe purposes of proving the charges, I was assisted by evidence from two expertwitnesses. The Crown's witness, Mr Simon Lee, is a Technical Director at leadinginternational accounting firm KPMG. He heads the firm's New Zealand AccountingAdvisory Services team specialising in the provision of technical accounting advice.This team provides technical advice and support on accounting and financial reportingmatters, assisting clients to implement new standards, determine the appropriatefinancial reporting treatment for complex transactions, transition to new reportingframeworks and generally keep up to date with a changing financial reportingenvironment. Mr Lee holds a Bachelor of Management Studies and a Bachelor ofCommerce and Administration with First Class Honours, and has 25 years' experiencein technical accounting.[149] I was also assisted by evidence from Mr Mark Hucklesby, who is the NationalTechnical Director for the Grant Thornton New Zealand Audit Partnership.Mr Hucklesby was called on behalf of Mr Bublitz. Prior to taking on that role inApril 2009, Mr Hucklesby spent three years in London as International FinancialReporting Standards Director at Ernst and Young Global Limited. That was aspecialist group created to deal with the development and interpretation ofinternational reporting standards released up to that date. Mr Hucklesby has hadconsiderable experience over the 25 years prior to that period of service in full-timeroles interpreting applying or commenting on Generally Accepted Accounting Practicein New Zealand, including contributing extensively to publications explaining theapplication of IFRS.[150] Although it appeared from the briefs of evidence of Mr Lee and Mr Hucklesbythat they held conflicting views on important aspects of the meaning and applicationof the relevant New Zealand accounting standards, it became apparent after each hadbeen cross-examined that there was a significant degree of concurrence between themon the key issues. When confronted with the proposition that the views he had initiallyexpressed did not address adequately the prospect of fraudulent activity leading to abreach of the standards, Mr Hucklesby was prepared to acknowledge thatdocumentary evidence of shareholding or other arrangements concerning thegovernance of an entity did not necessarily trump evidence suggesting thatarrangements other than those documented had been agreed.[151] The general concurrence between the experts, therefore, means that rather thansetting out their views and indicating which I have preferred and which I have notfollowed, it is sufficient for me to summarise my conclusions based on the helpfulanalyses of the experts and counsel's submissions.Discussion to the relevant accounting standards[152] In reaching my views, I have taken into account the concept of controlelaborated in NZ IAS 24 (the related party standard), NZ IAS27 which deals withconsolidated and separate financial statements, and a publication by leadingaccounting firm KPMG,42 as defined in the standards which were in force throughoutthe relevant period.[153] The starting point for the application of generally accepted accountingstandards in New Zealand is s 3 of the Financial Reporting Act 1993 which sets outthe legislative basis for the adoption of individual accounting standards relating toparticular accounting issues and an interpretation of accounting issues originatingfrom the International Accounting Standards Board. Since 2005, when New Zealandadopted the standards, the Accounting Standards Review Board in New Zealand haspicked up standards developed by the International Accounting Standards Board basedin London. After taking the standards through its own process of analysis andformulation, the standards (NZ IAS) become part of the regulatory regime in NewZealand.42 KPMG Insights into International Financial Reporting Standards (5th ed) 2008/09.[154] The purpose of financial statements generally is to provide information toenable readers to make economic decisions or to hold people or organisationsaccountable in circumstances where the readers might not otherwise be able to obtainor contract to obtain information they need for their investment decisions or otherdecisions about dealing with certain entities.NZ IAS 24[155] As indicated in the standard, NZ IAS 24 should be read in the context of itsobjective, which the standard describes as follows:The objective of this Standard is to ensure that an entity's financial statementscontain the disclosures necessary to draw attention to the possibility that itsfinancial position and profit or loss may have been affected by the existenceof related parties and by transactions and outstanding balances with suchparties.43[156] The standard requires disclosure of related party transactions and outstandingbalances in the separate financial statements of a parent, venturer or investor presentedin accordance with NZ IAS 27 - Consolidated and Separate Financial Statements.44[157] Put in lay terms, therefore, the standards may be seen as providing guidance toentities who are required to prepare financial reports in accordance with the accountingstandards in force in New Zealand about the provision of information which bestinforms readers seeking financial information about the entity.[158] It is convenient to repeat the relevant definitions contained in paragraph 9 ofthe NZ IAS 24:Related party A party is related to an entity if:(a) directly or indirectly, through one or more intermediaries, the party:(i) controls, is controlled by, or is under common control with,the entity (this includes parents, subsidiaries and fellowsubsidiaries);(ii) has an interest in the entity that gives it significant influenceover the entity; or43 NZ IAS 24 at paragraph 1.44 NZ IAS 24 at paragraph 3.(iii) has joint control over the entity;(d) the party is a member of the key management personnel of the entityor its parent;(f) the party is an entity that is controlled, jointly controlled orsignificantly influenced by, or for which significant voting power insuch entity resides with, directly or indirectly, an individual referredto in (d) or (e); or A related party transaction is a transfer of resources, services or obligationsbetween related parties, regardless of whether a price is charged.Control is the power to govern the financial and operating policies of an entityso as to obtain benefits from its activities.Key management personnel are those persons having authority andresponsibility for planning, directing and controlling the activities of theentity, directly or indirectly, including any director (whether executive orotherwise) of that entity.Significant influence is the power to participate in the financial and operatingpolicy decisions of an entity, but is not control over those policies. Significantinfluence may be gained by share ownership, statute or agreement.[159] Under paragraph 10:In considering each possible related party relationship, attention is directed tothe substance of the relationship and not merely the legal form.[160] And relevantly under paragraph 11:In the context of this Standard, the following are not necessarily relatedparties:(a) two entities simply because they have a director or other member ofkey management personnel in common, notwithstanding (d) and (f) inthe definition of "related party".(c) (i) providers of finance,simply by virtue of their normal dealings with an entity (even thoughthey may affect the freedom of action of an entity or participate in itsdecision-making process).[161] The standard specifies, among other things, the circumstances in which entitymust consolidate the financial statements of another entity (being a subsidiary) and theinformation that an entity must disclose to enable users of the financial statements toevaluate the nature of the relationship between the entity and its subsidiaries.[162] I also repeat, for convenience, the provisions of NZ IAS 27 dealing withcontrol:Control is the power to govern the financial and operating policies of an entityso as to obtain benefits from its activities.[163] Paragraph 13 of the standard provides:Control is presumed to exist when the parent owns, directly or indirectlythrough subsidiaries, more than half of the voting power of an entity unless,in exceptional circumstances, it can be clearly demonstrated that suchownership does not constitute control. Control also exists when the parentowns half or less of the voting power of an entity when there is:(a) power over more than half of the voting rights by virtue of anagreement with other investors;(b) power to govern the financial and operating policies of the entityunder a statute or an agreement;(c) power to appoint or remove the majority of the members of the boardof directors or equivalent governing body and control of the entity isby that board or body; or(d) power to cast the majority of votes at meetings of the board ofdirectors or equivalent governing body and control of the entity is bythat board or body.[164] As explained by Mr Lee and Mr Hucklesby, the power to govern focuses onwhether the ability to exercise control has a legal or contractual basis. The expertsagreed that at the relevant time – in 2009 and 2010 – there was no clear acceptancethat informal control through influence would suffice. Some experts held the view atthe time that the definition of control in NZ IAS 24 and NZ IAS 27 included theconcept of de facto control. Some entities adopted that approach in consolidatingfinancial statements in accordance with the standard; others did not.[165] The meaning of control in NZ IAS 27 is also informed by the New ZealandEquivalent to Interpretation SIC-12 Consolidation - special purpose entities (NZ SIC-12). Although it is not said that any of the entities with which this case is concernedwere special purpose entities to which NZ SIC-12 had direct application, the FinancialReporting Standards Board expressed a view in that standard about the meaning ofNZ IAS 27.13. At paragraph 9 of NZ SIC-12 the following comment appears:NZ IAS 27.13 indicates several circumstances which result in control even incases where an entity owns one-half or less of the voting power of anotherentity. Similarly, control may exist even in cases where an entity owns littleor none of the SPE's equity. The application of the control concept requires,in each case, judgement in the context of all relevant factors.[166] Paragraph 10 of NZ SIC-12 relevantly provides:10. In addition to the situations described in NZ IAS 27.13, the followingcircumstances, for example, may indicate a relationship in which anentity controls an SPE and consequently should consolidate the SPE:...(b) In substance, the entity had the decision-making powers toobtain the majority of the benefits of the activities of the SPE....[167] The effect of the relevant accounting standards as they applied in 2009 and2010 is usefully summarised in the KPMG Insights document which was referred toand relied upon by both expert witnesses. Addressing the need for the inclusion ofsubsidiaries in consolidated financial statements, KPMG Insights identifies that thedefinition of a subsidiary focuses on the concept of control and has two parts, both ofwhich need to be met in order to conclude that one entity controls another:(a) the power to govern the financial and operating policies of an entity;and(b) an intention to obtain benefits from its activities.45[168] Bearing in mind the definition of related parties in NZ IAS 24, the same viewsof the implications of the standards may be applied to the question in this case ofwhether any parties to transactions were related parties. KPMG Insights contains the45 KPMG Insights at 2.5.10.20.following proposition which accord with the views of the two experts and which Iaccept:(a) There is no requirement for the parent to have a shareholding in asubsidiary, and this is not a necessary pre-condition for control.46(b) Control is presumed to exist when the parent owns, directly orindirectly through subsidiaries, more than half of the voting power ofan entity. This presumption of control may be rebutted in exceptionalcircumstances if it can be demonstrated clearly that such ownershipdoes not constitute control.47(c) Even if the parent owns half or less of the voting power of an entity,control exists in any of the following circumstances:(i) the investor has power over more than one-half of the investee'svoting power through an agreement with other investors;(ii) the investor has the power to govern the investee's financial andoperating policies by virtue of a statute or agreement;(iii) the investor has the power to appoint or remove the majority ofthe investee's board of directors or governing body members,and control of the entity is exercised through that board or body;or(iv) the investor has the power to cast the majority of votes atmeetings of an investee's government body (board of directorsor other governing body) through which control of an entity isexercised.46 At 2.5.10.30.47 At 2.5.10.40.The power to govern[169] KPMG Insights notes at 2.5.30.10 that the assessment of whether one entitycontrols another entity depends on the application of the control concept inNZ IAS 27. The document then reflects the evidence of the experts about the differingviews as to how the NZ IAS 27 concept should be applied. It says that one view isbased on the existence of the power to govern, considering whether the ability tocontrol has a legal or contractual basis rather than whether that control actually isexercised. The other view is that in addition to the power to govern analysis, theevaluation of whether consolidation is required to take into account de factocircumstances such as when an entity holding a significant minority interest cancontrol another entity without legal arrangements that would give it majority votingpower.[170] It was accepted during the hearing by the Crown and the defence that this isnot a case in which the de facto control concept is relevant. The Crown has rested itsproposition firmly on the power to govern analysis. That is demonstrated byMr Johnstone's concession that it is necessary for the Crown to prove the existence ofan agreement between Mr Bublitz and the directors and shareholders of Viaduct fromtime to time ceding to Mr Bublitz the power to govern the financial and operatingpolicies of Viaduct so as to obtain benefits from its activities.[171] I accept Mr Lance's proposition on behalf of Mr Bublitz, founded on theobservation at 2.5.30.20 of KPMG Insights, that what must be considered is whetherthe power or ability to control the entity has a legal or contractual basis rather thanwhether that control actually is exercised. It must be, as Mr Lance submitted, anenforceable right or power although not necessarily one which is recorded in writing.Although Mr Hucklesby would normally look for, and would expect to find,documentary proof that such an agreement vesting power of control would be inwriting, he conceded that the accounting standard does not mandate written evidenceof the existence of an agreement. He acknowledged under careful cross-examinationby Mr Johnstone that the factual circumstances may be indicia of the existence of anoral agreement, for example.[172] I do not accept the proposition, advanced during defence arguments, that thepower to govern approach requires that a finding of control must be based only on anagreement between persons or entities registered as holding shares. Consistently withthe view that "(d)etermining whether control exists requires a careful analysis of allfacts and circumstances",48 and as a matter of plain logic, the proposition at 2.5.50.40of KPMG Insights that "an oral shareholders' agreement may be as important as awritten agreement in assessing control" applies with equal force to agreementsbetween registered shareholders and those whose interests are not recorded on theregister. That view is expressly confirmed at 2.5.10.30 of KPMG Insights.Summary of evidence from which Crown says Mr Bublitz's control of Viaductshould be inferred[173] It is the Crown's proposition that, despite not formally being a director orshareholder, it was in fact Mr Bublitz who controlled Priority/Viaduct upon itsacquisition by Phoenix. It is said that the true extent of Mr Bublitz's control wasdeliberately concealed other than from Mr Bublitz, Mr Wevers, Mr McKay and, later,Mr Blackwood. A concise summary of some of the circumstances from whichMr Bublitz's control of Viaduct can and should be inferred was provided by the Crownto Mr Lee as part of the briefing he received prior to reporting on his views and givingevidence. The background was included in his brief of evidence and, although thecircumstances were expanded upon by the Crown in considerable detail in evidence,the summary provides a useful framework for considering whether the Crown'ssubmissions should be accepted.[174] The proposition put to Mr Lee was that the circumstances from whichMr Bublitz's control of Viaduct should be inferred included:(a) the implementation from 16 February 2009, on an apparently pre-determined basis, of the Hunter asset purchase and lending programme,notwithstanding a paucity of independent consideration by its directorsand despite criticism arising upon enquiry by Treasury and its contract48 KPMG Insights at 2.5.30.50.at PwC in respect of concerns about the use being made of the Crownguarantee;(b) the apparently poor quality of some of those assets purchases and loans;(c) the apparent expectation of control required to justify Mr Bublitzadvancing the entirety of the funding necessary for Viaduct'sacquisition to Mr Wevers' holding company pursuant to a loanagreement which did not in its own terms provide for any form ofsecurity (albeit a GSA appears to have been registered immediatelyupon Treasury signalling its interest around a month after theacquisition), and which was not supported by a personal guarantee fromMr Wevers;(d) Mr Bublitz's formal role extending beyond that of lender to Viaduct'sparent to include acting as a contractor to Viaduct under a managementcontract providing for remuneration at a level equivalent to that ofMr Wevers and in excess of Mr McKay and other executives;(e) Viaduct's ongoing redemption for cash of a substantial value of capitalnotes which it had issued to Hunter as consideration for the severalpost-acquisition asset purchases, despite such capital notes beingconvertible to shares at Viaduct's election and notwithstanding adeepening cash crisis at Viaduct, for purposes apparently designed tofurther Hunter's interests rather than those of Viaduct, and atMr Bublitz's apparent direction;(f) various items of internal correspondence indicating Mr Bublitz's abilityto control decision-making by Mr Wevers and Mr McKay, includingthe setting of salaries at Viaduct;(g) the fact that when, in September 2009, Mr Wevers:(i) advised Mr Bublitz of deep concern about the value of threeloans which Viaduct had purchased from Hunter and a potentialbreach of Viaduct's trust deed;(ii) pointed out that "everything now relies on cash being able to betaken from [Viaduct]" (referring to Hunter-associated venturesand its banker, National Bank);(iii) listed a number of options as to what could be done, includingMr Bublitz's selling his house and Viaduct being wound up,adding that cash could only come from Mr Bublitz selling hisassets (or finding outside investors) and not from Viaduct,the outcome was not Viaduct's winding up or an immediate injection ofcash from outside Viaduct. Instead, Mr Wevers resigned as director andtransferred 51 per cent of his shares in Phoenix, Viaduct's soleshareholder, to Mr McKay. Another associate of Mr Bublitz who hadalways been working on its business (Mr Blackwood) became thesecond director (rather than Mr Bublitz);(h) Hunter's acquisition in December 2009 of another Crown-guaranteedfinance company (Mutual), which then embarked on a series of loanasset purchases from Viaduct intended to support Viaduct's cash-flowas it scaled back its operations (including withdrawing its Prospectusas from 30 December 2010) prior to it entering receivership on13 May 2010.[175] The loan asset purchases referred to in the last item included a loan purchaseby Mutual from Viaduct within a few days of Mutual's acquisition by Hunter.Unbeknown to Mutual's continuing minority shareholder/director, Mr Kincaid, thetransaction was necessary to fund a capital note cash redemption by Viaduct to Hunter,which cash Hunter used to make a late payment on Mutual's purchase price. In thatway, Mutual effectively bought an asset to allow itself to be bought.[176] To that list provided to Mr Lee, I add that the Crown appears also to rely ontransactions which it says were carried out dishonestly around the time of Viaduct'sreceivership. It is suggested that it might be inferred from those actions thatMr Bublitz and the other defendants were determined to use whatever means wereavailable, including dishonest means, to benefit the Hunter Group at the expense ofViaduct's receivers (and, therefore, debenture holders) and to conceal having done so.[177] Bearing in mind that these reasons are confined to a concise account of thefacts and a plain statement of my essential reasons for my findings, I do not attemptto record the comprehensive evidence relied upon in the Crown's closing. I have beenassisted by, and am grateful for, the industry of counsel in referring me to the manydocuments upon which the Crown's propositions are based. I have considered all ofthe material carefully but I summarise only some of the evidence to illustrate the broadpropositions which the Crown put to Mr Lee and which I have just repeated.Did Mr Bublitz have control of Viaduct in terms of the accounting standards?Did an "abiding, secret arrangement ceding control of Viaduct to Mr Bublitz"exist fromthe date Priority Finance was acquired?[178] Despite the absence of a written agreement giving Mr Bublitz control ofViaduct, the Crown says the Court is compelled to conclude by inference from theevidence that underlying all of the activities was an abiding, albeit secret, arrangementgiving Mr Bublitz the power of control over Viaduct's financial decisions. I have heldthat such an arrangement must have been enforceable to meet the test. In that regard,I take the Crown to have conceded that it is not sufficient for the Crown to show onlythat Mr Bublitz was influential – even hugely influential and forceful – in persuadingthe directors and shareholders of Viaduct to take the decisions and act as they did, butthat he had the right to require those decisions to be made and actions to be taken.[179] Although the first of the alleged offences by Mr Bublitz is not said to haveoccurred until 9 March 2009 with the first loan advance by Viaduct to Homebush, theCrown is critical of the transactions which were entered into on 16 February 2009, thefirst working day after Priority was acquired, as being the implementation of theallegedly unlawful plan. For the Crown's proposition to have any force, therefore, thesecret arrangement with Mr Wevers had to be one entered into from at least the timeof the acquisition of Priority. Mr Johnstone did not identify – by reference to somesignificant event or circumstance – any later time at which the secret contractualarrangement may have been entered into. I consider it necessary, to avoid falling intothe trap of placing undue importance on hindsight, to look at the events leading up tothe acquisition and immediately afterwards to identify any basis on which I amcompelled to accept the Crown's core proposition. What occurred during January andearly February 2009; on the date of the settlement (13 February 2009); on the nextbusiness day (16 February 2009) and thereafter was relied upon as evidence fromwhich the existence of the agreement should be inferred, the Crown arguing that thedecisions were predicated on advancing Hunter interests rather than doing what wasbest for Viaduct. Reference to those events may be useful to test my initial conclusionsbut I repeat the caution that undue reliance on hindsight would be wrong.What occurred around the time of the establishment of Viaduct[180] Conceding that no shareholder deed was ever located during the investigationinto these matters, the Crown points to the existence of the signed but undated sharetransfer anticipated by Mr Bublitz's email of 20 January 2009 to Mr Wevers asevidence of the means by which the pre-arranged plans settled at Pauanui would beimplemented. In it, Mr Bublitz's proposition was that Mr Wevers and he:(s)hould incorporate a company called Phoenix Finance Holdings Limitedwith 900 shares owned by you and for you to be the sole director. Then whatwe should do is have a share transfer signed, along with resolution (bothundated) whereby I purchase 600 shares and are appointed to the Board & andwe act on these the day after settlement or whenever.I can't help but feel we may need this flexibility (it's a gut instinct & nothingelse) so we should keep our powder dry.For example:We may need to break the related party chain to one more degree to completesettlementIt may be better to then restructure the shareholding of Phoenix completely tobe more tax efficientIt may be better to completely resell the shares in the target from Phoenix to ahunter tax loss entityI am not sure yet as we haven't looked at anything other than the restructuringof settlement & capitalizing of the target. Anyway, let me know thoughts &if ok get Lara to organise with my accountant Lance the setting up of thecompany. Meanwhile I have already another shelf company called HCLFinance Holdings Limited sitting there as well.[181] I infer that the dating of the documents was intended to be deferred untilMr Bublitz determined that it was appropriate for him to take ownership of a majorityof the shares and to have the ability to put the transfer of shares into effect unilaterally;that is, without requiring Mr Wevers' further consent. Mr Wevers responded by sayinghe was happy with Mr Bublitz's proposal and agreed on the need for flexibility aroundthe time of settlement. He said he would probably put the shares into a companyowned by his wife, his children and him equally but agreed that if it made sense tohave the shares of the target owned by a Hunter entity for tax reasons he would happilygo along with that on the understanding that full disclosure is made and the risks areclearly known.[182] I consider it to be a reasonable inference from this exchange that, on 20 January2009, it was intended by both Mr Bublitz and Mr Wevers that Mr Bublitz would be amajority shareholder owning 60% of Phoenix or whatever vehicle was used to acquirethe target finance company (which turned out to be Priority Finance Limited), but forthat shareholding not to take effect until after the acquisition. If Mr Bublitz hadbecome Phoenix's majority shareholder, that would have created a presumption thathe was in control of both Phoenix and the finance company acquired by it. ButMr Johnstone acknowledged that, while the existence of the signed but undated sharetransfer anticipated by Mr Bublitz in the 20 January 2009 exchange is of assistance tothe Crown, it is neither essential nor determinative of the issue. Mr Johnstonesubmitted that the more fundamental questions relate to what the entirety of theevidence, including the evidence of the share transfer, establishes about the issue ofcontrol.[183] On 26 January 2009, Mr Bublitz and Mr Wevers exchanged emails discussingthe terms of the arrangements between them for the purchase of the finance companywhich had by then been identified as Priority Finance Limited. Mr Bublitz proposedthat Hunter Capital Group would fund "say $5M of assets into the vehicles Phoenixand PFL" and that it would lend Phoenix $2.15M to buy the PFL shares, the loan beingrepayable on demand with interest paid at 11% per annum. It was proposed thatHunter would be issued with $2.9 million worth of capital notes at 9% which wouldbe signed to another party so as not to create a related party issue after settlement; also,that Hunter would have an option to buy two-thirds of Phoenix for $1 which would be"a few days after PFL has settled". There was then discussion about the assets thatHunter Capital would "vend in" to PFL, being the loans to the various project entities– Helensville, Cashmere, Silverdale and Docklands. The email exchanges referred tothe transfer of staff from Hunter Capital to the finance company, and how salaries andother administrative expenses would be handled. Any losses incurred from the assetsvended in would be addressed by Hunter Capital's ownership of capital notes and theloan to Phoenix.[184] It was agreed that Phoenix would be renamed Hunter Capital Holdings Limitedand Priority would be renamed Hunter Capital Finance Limited, although that neveroccurred.[185] Observations made in the exchange made it clear that Mr Bublitz andMr Wevers were very conscious of related party issues. After Mr Bublitz had said thatthe capital notes would be assigned to another party "so as not to create a related partyissue after settlement", Mr Wevers responded by saying that they needed to be verycareful about what, if any, documentation surrounded the assignment. He referred tothe Crown guarantee talking about a related party being anyone the principal debtorcontrols "... pursuant to a contract, an arrangement, an understanding or otherwise".Mr Wevers said this needed to be handed "very carefully".[186] On 3 February 2009, Mr Wevers reminded Ms McCormick to prepare theundated share transfer suggested by Mr Bublitz and executed the incorporationdocuments for Phoenix. Mr Bublitz also requested Ms McCormick to prepare a sharetransfer and director's resolution (undated) to be prepared and signed by Mr Wevers.Ms McCormick sent them to Mr Wevers on 4 February saying in the covering email:Docs for signing enclosed, if you want to keep it confidential, I can witnessthem tomorrow for you when I'm in CHCH.[187] On 10 February 2009 Mr Wevers emailed Mr Bublitz, Mr McKay,Mr Macmillan and Ms McCormick with a draft biography referring to each of themhe had prepared for insertion into the new finance company's prospectus. The draftbegan with Mr Bublitz being designated as director and recording that he was "themajority shareholder of Hunter Capital Finance Limited".[188] Neither a share transfer nor a shareholders' agreement between Mr Bublitz andMr Wevers was ever located during the investigation. I am satisfied, however, that itis reasonable to infer that Mr Wevers did execute the documents taken to him byMs McCormick when they met in Christchurch, even though there was no directevidence that he did so.[189] It is significant, in my view, that these documents pre-date the legal advicereceived from Ms Rachel Taylor of DLA Piper and the accounting advice fromMr Rhys Barlow of BDO Spicer Wellington, about the related party issues arising fromthe proposed transactions.[190] Ms Taylor's advice focused on the arrangements for the acquisition of PriorityFinance, at a time before Mr Bublitz acquired any shareholding. Mr McKay waslargely responsible for the preparation of instructions to and discussions with theadvisors, and his awareness of the related party issues is plain from his exchanges. Inevidence, Mr McKay accepted that the plan was to "hold back Mr Bublitz's relatednessuntil such time as Priority's dealings with Hunter were substantially complete".[191] The Crown suggests that this concession is evidence of a settled plan,originally formed at the meeting in Pauanui in mid-January 2009, for Mr Bublitz toassume ownership of the majority shareholding in the finance company shortly afterthe acquisition. It is said that, although there is no documentary evidence that he didso, an agreement between him and the directors – Mr Wevers and Mr McKay initiallyand Mr McKay and Mr Blackwood latterly – should be inferred. I am not persuadedon the evidence so far traversed, however, that that inference should be drawn.[192] I accept Mr Johnstone's suggestion that Ms Taylor's advice of 9 February 2009that related party constraints were not engaged was predicated on an understandingthat Mr Wevers and Mr Bublitz merely intended, in the future, to discuss theconversion into equity of the loan made by Hunter Capital to Phoenix. Mr Johnstone'spoint was that she had been misled into believing that to be the position when in factan agreement had been reached between Mr Bublitz and Mr Wevers that that wouldoccur and quite soon after the acquisition.[193] But it does not matter, in my view, that it may have been intended thatMr Bublitz would take ownership after the acquisition when that had not in factoccurred. A finding that that the Crown has satisfied me beyond reasonable doubt thatthere was a secret binding agreement by which Mr Wevers had ceded control over thefinance company to Mr Bublitz from the time it was acquired cannot be justified solelyon the basis of an expectation that a formal transfer of shares would occur at someunspecified time in the future. It is clear that the protagonists were acutely consciousof related party issues, notwithstanding the ratio analysis check prepared byMr McKay on 10 February 2009 which anticipated the pre-acquisition transactionsand then further steps being taken to vend assets into the new finance company throughthe Docklands arrangements and Cashmere. Although the analysis plainly anticipatesthe transactions, it says nothing about Mr Bublitz's ownership of the shares or anagreement that he would have control of the new finance company.[194] I accept that after the mid-January meeting at Pauanui, Mr Bublitz set out toobtain assistance in creating a separation between him in his capacity as intendeddirector and shareholder in the new finance company and as the owner in control ofthe various Hunter Group entities. For example, he corresponded with Mr Morrisonon 20 January 2009 to say that, in order to raise funds from the public, he was workingout the opportunity to buy a finance company with the government guarantee in place.He said:In order to do this I need to create a separation between you/me for thepurposes of "related party issues" under the Securities Act, Reserve Bank Act& AFRS so that your trustee company can hold assets effectively off balancesheet and then FinCo can either lend or require these assets without causingissues or concerns. Accordingly can we please arrange for the following:Lance to resign from Hunter entities, Nicholson Trust and KawakawaHCG wishes to sell its shares in Dockland Holdings Limited to a MorrisonCreed Trustee Co (maybe set up a separate vehicle called Morrison Creed(DHL) Trustee Limited for this purpose) & the trustee co hold these on trustfor HCG or a back to back loan is left owing between HCG & the trustee co,whichever is more appropriate.What we are wanting to do is use our shares in Docklands to help capitalizeFinCo & John Harkness is preparing a Sale Agreement at present for thispurpose.[195] On the face of it, it is reasonably open to conclude that that request amountedto no more than Mr Bublitz reorganising the affairs of the Hunter Capital Group torecognise that, if he took "control" of the new finance company in terms of thedefinition in the Priority trust deed, he could not be in control of the various Hunterentities whom he wished to deal with the finance company so as to provide muchneeded cash for the Hunter Group projects. I regard it as significant that Mr Bublitzhad explained his intentions to Mr John Harkness, a solicitor whom he asked toimplement the steps Mr Bublitz considered necessary. If Mr Bublitz was actingfraudulently at that point, he could have been much more discreet. On the face of thedocuments, including the email to Mr Harkness, Mr Macmillan, Mr McKay andMr Wevers on 14 January 2009 setting out what he intended should happen, ananalogy can be drawn (as Mr Lance suggested in closing) to a tax payer legitimatelyreordering his affairs to minimise the incidence of tax. It is an analogy which hadoccurred to me as I listened to the evidence and the argument, and I agree it is apt.[196] I place into the same category the approaches Mr Bublitz made on25 January 2009 to Mr Franklin asking him to "front" NKE Trust Limited; the requestto Mr Bruce to acquire shares in the Silverdale project on the basis of an advance of$600,000 to do so; and his request to Mr Lovegrove asking him to be a trustee/directorof a company to hold some assets of his from time to time. Mr Lovegrove respondedthat he had no problems of being a trustee/director as long as he was not liablefinancially. Mr Bublitz then asked Ms McCormick to instruct Mr Morrison toincorporate the company called JL Trustees Limited which would acquire part of theCashmere 11 loan from Hunter Capital and also hold capital notes earning interest.[197] Whether or not such arrangements would be effective to avoid the properapplication of the related party restrictions, those steps are open to the inference thatMr Bublitz was adopting measures that he considered to be purposeful but lawful interms of the applicable definition of "control". Mr Bublitz's exchanges with Mr Ebertabout warehousing shares, on 30 January 2009 and 9 February 2009, can beinterpreted as demonstrating a similar approach.The significance of the advice from Mr Rhys Barlow of BDO Spicers[198] On 22 January 2009, Mr Rhys Barlow of BDO Spicers had given initial adviceto Mr McKay that the proposed transactions described to him by Mr McKay wouldnot result in the occurrence of related party transactions, although he expressed somecaution about that view. Mr Barlow said that, although certain anticipated transactionsmay not be related party transactions in nature, adequate disclosure was still requiredso as to provide adequate information for users of financial statements to makeeconomic decisions. In addition, Mr Barlow said it was advisable that the trustee wasconsulted and that transactions were concluded on the basis that the trust deed'srequirements were not breached. In other words, it appears that on 22 January 2009Mr Barlow had been prepared to accept Mr McKay's assurances that no related partytransactions were involved when giving his opinion that that was the correct position.[199] On 11 February 2009, the day on which the sale and purchase agreementbetween Phoenix and Priority had earlier been executed, Mr Bublitz was providedwith information that demonstrated that he may have been misled by Mr Barlow'searlier advice about the legality of the proposals he was implementing. At 5.11 pmMr Bublitz was alerted by Mr McKay to advice from Mr Barlow which Mr McKaydescribed as "not good news". Following confirmation from Mr McKay earlier thatafternoon that Phoenix was a company owned and controlled by Mr Wevers, whereasHunter Capital was owned and controlled by Mr Bublitz, Mr Barlow said, in an emailto Mr McKay:Based on the information you have provided we have provisionally concludedthat this is a substance over form issue and from an Accounting standpoint isa related party transaction.[200] Mr Barlow said he was bound to refer the issue to BDO's technical division forclearance because he had become aware that the Christchurch office was the auditorfor Priority Finance and he wished there to be consistent advice between the twobranches of the firm.[201] Mr Bublitz promptly registered his concern about the change in Mr Barlow'sview because, he said, the deal and one other they were working on had been structuredaround the earlier advice. The next day, Mr Bublitz had a telephone discussion withMr Barlow, following which he sent an email to Mr Barlow saying:... I confirm that Hunter Capital Group Limited will not be negotiating nextweek (or in the foreseeable future) to acquire a majority in Phoenix FinanceHoldings Limited. Also the re-registration (next week) of the Prospectus forPriority Finance Limited will not contain Hunter as a (potential) shareholderor me as a director.[202] The Crown views this statement as representing such an extreme change inposition, in a very short time, as to not be credible. The Crown's position, in essence,is that, on 12 February 2009, Mr Bublitz simply told Mr Barlow what he thoughtMr Barlow needed to hear in order to obtain his approval to the acquisition of PriorityFinance and future dealings between the finance company and the Hunter Groupentities. That is an available inference, but I am not persuaded that at that stage it wasthe only reasonable inference to be drawn from the circumstances.[203] By the time of Mr Barlow's second opinion, Phoenix Finance had alreadyentered into the heads of agreement with the Gillmans for the acquisition of PriorityFinance. The die was cast in that sense, and I accept that that was partly on the basisof Mr Barlow's earlier advice. It is hardly surprising that Mr McKay and Mr Bublitzwere alarmed by Mr Barlow's change of view. If Mr Bublitz was to pursue theacquisition and the vending-in proposals in order to provide much needed cash to theHunter Group, and to act legitimately in doing so, he had no option but to accept thathe would not be able to acquire the shares in the new finance company as previouslyhad been intended, at least so long as the new finance company was intended to dealwith Hunter assets.[204] I do not think the existence of signed but undated documents such as a sharetransfer between Mr Bublitz and Mr Wevers and a directors' resolution makes anydifference to the proposition. From the outset, Mr Bublitz had indicated that he wouldnot expect to obtain a shareholding or directorship in the new finance company untilhe was able to do so. It is open on the evidence to conclude reasonably that, afterreceiving Mr Barlow's revised opinion, in circumstances where it would have beenvery difficult to back away from the Priority purchase, Mr Bublitz remained attractedto taking advantage of Mr Wevers' prior experience in property lending by enteringinto a joint venture with him for the acquisition of the finance company. Mr Bublitzwould provide the resources through Hunter Capital and Mr Wevers would provideexperience and the ability to operate the company. It is reasonable to conclude thatthe holding of the undated documents merely went to providing him with addedsecurity for the arrangements he had made to use Hunter assets to fund the newventure. He could put those documents into effect at any time but that would give himcontrol only from that time, not earlier.[205] I have not overlooked the significance of the Crown's submission that thenature of the decisions made by Viaduct's managers; the extent of Mr Bublitz'sinvolvement in them and the manner in which key decisions were taken compels theinference that Mr Wevers had ceded control of the finance company to Mr Bublitz by"an abiding, secret arrangement". In that regard, I have considered carefully theCrown's reliance on a number of events or circumstances which might reasonably besaid to point to efforts by the defendants to conceal Mr Bublitz's actual control ofViaduct. The matters, which I discuss more fully below, include:(a) Mr Bublitz's efforts to avoid full transparency in making the revisedarrangements for the shareholdings and directorships in the HunterGroup assets.(b) The suggestion that Mr McKay withheld relevant information whenrequesting advice on related party issues from Ms Taylor andMr Barlow.(c) The terms of the management services agreement between Viaduct andMr Bublitz.(d) The absence of any reference to Mr Bublitz in the 3 March 2009prospectus for Viaduct.(e) The allegedly misleading responses to questions raised by the Treasuryleading up to the withdrawal of Viaduct's Crown guarantee, and the latepreparation of documents designed to create the impression of arms'length dealing between Viaduct and the Hunter entities.(f) A "Policy Directive" dated 13 May 2009 in which Mr Bublitz is said tohave instructed Mr Wevers to cut the base salaries of Viaduct's seniorexecutives by 40 per cent.(g) Decisions by Viaduct, under Mr Bublitz's direction, to continue totransact with the Hunter entities solely for the benefit of the HunterGroup and to protect Mr Bublitz's investments in the various projects,rather than to make the best use of the investor funds for the benefit ofthe Viaduct investors.[206] There is force in the proposition that Mr Wevers and Mr McKay did nothingafter February 2009 that was contrary to Mr Bublitz's wishes or what he considered tobe Hunter Capital's interests. Mr Bublitz was deeply engaged in the management ofViaduct to a far greater extent than merely providing advice, and that the decision-making in which he was involved extended to governance matters within the properauthority of the directors of the company. I accept also that the defendants attemptedto conceal that measure of engagement from interested parties such as the Treasuryand Viaduct's trustee.[207] I cannot be sure, however, that those things occurred because Mr Wevers andMr Bublitz had reached a binding arrangement giving Mr Bublitz control. In reachingthat conclusion, I acknowledge the relevance of the circumstances in which the jointventure was formed; of Mr Bublitz's financial commitment to it; and of theconsiderable influence he had by dint of his personality and his overall supervision ofthe plan devised in Pauanui in mid-January 2009. I am mindful, however, of theprovisions of the accounting standards that recognise the difference between the abilityto make management decisions and the power to govern. Applying the standards, thequestion to be asked is not whether Mr Bublitz actually exercised a form of controlover Viaduct but whether, as the KPMG Insight explanation of the standards indicatesat 2.5.30.50, control must be inferred because Mr Bublitz's ability to control theoutcome had a legal or contractual basis.[208] It is important to acknowledge also that, at the time the plans for the acquisitionof a finance company were being made, and at the time of the acquisition of Priority,Mr Bublitz, Mr McKay and their associates were focussed on the issue of control interms of the accounting standards. Control in the broader sense of real or effectivecontrol was not an issue until the purchase of Mutual Finance in December 2009.Conclusion on control of Viaduct up to 29 September 2009 in terms of theaccounting standards[209] As Mr Lee and Mr Hucklesby eventually agreed, Mr Wevers' shareholding inViaduct created a presumption of control which could nevertheless be rebutted inexceptional circumstances. Such exceptional circumstances did not require theexistence of other documents rebutting the presumption and could be founded on ananalysis of all of the circumstances. Such an analysis is very much a matter ofjudgment. After careful consideration of the evidence, I am not persuaded thatMr Bublitz must necessarily be taken to have reached an agreement with Mr Weversthat notwithstanding the documented position, he and he alone had the power tocontrol Viaduct's decision-making.[210] I return to the onus and standard of proof on what is a core issue. I accept thatthere is force in the several bases upon which Mr Johnstone advances the Crown'sproposition about an arrangement, and acknowledge that suspicion must attach to theway in which Mr Wevers, Mr McKay and, particularly, Mr Bublitz conductedthemselves up to and immediately after the acquisition of Priority Finance. But theCrown's case does not take me across the threshold into being sure that Mr McKay,Mr Wevers and Mr Bublitz knew that the steps they had taken and were takingamounted to wilful breaches of the related party restrictions in the Priority/Viaducttrust deed because was a secret, binding arrangement that Mr Bublitz had the powerto control Viaduct.[211] As Mr Lance said, in the absence of Mr Bublitz having an enforceable right tocontrol the finance company, Mr Wevers' position and powers as a director and thecontrolling shareholder meant that he could have taken Viaduct in any direction hethought fit. He had no incentive to do so, however, because realising the significantopportunities provided to him by the shareholding in Viaduct through Phoenix(including a substantial income stream) was entirely dependent on the retention ofMr Bublitz's goodwill. There is nothing inherently implausible about the notion of agenuine joint venture between Mr Bublitz and Mr Wevers, with Mr Bublitz providingthe financial capital and Mr Wevers contributing his experience, expertise and time.That makes their equal financial packages explicable. But if Mr Wevers madedecisions which ran contrary to Mr Bublitz's plans for the use of the finance company,the joint venture would fail. It is true that, in theory at least, Mr Wevers could havemanaged the finance company on the basis of the non-Hunter assets, includinginvestor funds obtained through the issuing of the new prospectus. But Mr Bublitzhad the ability to shut down Viaduct by calling in the advance to Phoenix for theacquisition of the finance company and enforcing the other rights that subsequentlybecame available to him through the issuing of capital notes and a general securityagreement.[212] I conclude, therefore, that it is reasonably possible that, immediately after theacquisition of Viaduct, Mr Bublitz did not have control of the finance company byvirtue of an abiding, secret arrangement with Mr Wevers that he would do so. It isreasonably possible that he was content at that stage to use his considerable influenceover Viaduct as its principal funder and his ability to engage in financial transactionswith Viaduct which had the potential for it to obtain revenue from the vending in ofHunter assets and ultimately to secure the repayment of those loans for further lending.[213] As defence counsel were at some pains to point out, it is by no means clear thatat the time Priority Finance was acquired it was doomed to fail. While there is nodoubt that a number of the Hunter projects were in in financial difficulty, the injectionof funding through the acquisition of the finance company and the access to its investorfunds created opportunities for the growth of both Hunter and the finance company'sbusiness. There was nothing inherently unlawful or improper in the plan to acquire afinance company for the purpose of providing access to its investors' funds. Moreover,Priority was acquired as a going concern with existing investors and the potential fora significant amount of business other than through Hunter activities. The evidenceestablished that the transactions involving Hunter assets and entities did not representeven a majority of the finance company's business.[214] It is plain that the withdrawal of the Crown guarantee had a profoundly adverseeffect on Viaduct's prospects; in some respects, it is surprising that Mr Weversremained engaged in the venture for as long as he did. Mr Wevers does seem to havebeen surprisingly compliant. It may be that he was negligent – even grossly so – ofhis duties as a director and to the Viaduct investors; or perhaps just not as competentas might have been expected; or somewhat weak in character, but I am not in a positionto make that judgment. Mr Wevers' resignation as a director of Viaduct on29 September 2009 and the transfer of 51 per cent of the shares in Phoenix toMr McKay indicates that Mr Wevers saw the future of the joint venture as being bleak.It is clear that he no longer wished to be actively engaged in a business in which theserious concerns he expressed about the future viability and direction of the financecompany were being ignored.[215] It is not insignificant, however, that Mr Wevers did not transfer the whole ofhis shareholding to Mr McKay. If he had ceded control of that company and,therefore, Viaduct to Mr Bublitz by a secret agreement, there would have been noreason for him to have retained any shareholding in Phoenix. A minority shareholdingcannot have been worth much at that time, so disposing of the entire parcel would nothave caused any hardship. The retention of the 49 per cent is consistent with both MrBublitz and Mr Wevers believing the shares were his to keep if he wished.[216] The matters the Crown has advanced may give rise to a suspicion – even astrong one – that Mr Bublitz and Mr Wevers had entered into an agreement, either inwriting or orally, that Mr Bublitz was in control. But the evidence falls short of leadingme to conclude that I am sure that, at any time before or after 16 February 2009,Mr Wevers had agreed that Mr Bublitz alone would have the power to govern Viaductand that Mr Wevers was a mere functionary.[217] For those reasons, I am not satisfied to the criminal standard of proof that, upto the time Mr Wevers resigned as a director on 29 September 2009 and transferred acontrolling interest of the shares in Phoenix to Mr McKay the following day, there wasany agreement in which control of Viaduct was vested in Mr Bublitz.Verdicts on Charges 1 to 9[218] As is identified in the question trails setting out the elements of the allegedoffences under s 220, it is an essential element of each of Charges 1 to 9 that, at thematerial times, Mr Bublitz was in control of Viaduct in terms of the accountingstandard in NZ IAS 24. Charges 4, 8 and 9 rested, in part, on proof of breaches of therelated party transactions that are the subject of Charges 1 to 3 and 5 to 7. The Crownhas failed to prove beyond reasonable doubt the element of control as alleged. Thereis no need for me to consider whether the other elements have been proved.[219] I find each of the defendants not guilty on each of Charges 1 to 9 inclusive.Charges 10 to 15 – Control of Viaduct in terms of GAAP/NZ IAS 24 after MrWevers' resignation[220] The departure of Mr Wevers from Viaduct at the end of September 2009changed the dynamic for both the governance and management of the financecompany. I have held that it is reasonably possible that Mr Wevers was genuinely ajoint venturer with Mr Bublitz in the establishment and running of Viaduct, and incontrol of the company in terms of the accounting standards because of hisshareholding, up to the time he left. The appointment of Mr Blackwood as a directorof Viaduct and the transfer of Phoenix shares representing a controlling interest in thecompany to Mr McKay, however, changed the landscape. The 51 per centshareholding in Phoenix gave rise to a presumption that Mr McKay controlled theholding company and Viaduct, at least in terms of the accounting standards. It followsthat, for the Crown to prove that Mr Bublitz was in control of Viaduct in terms of theaccounting standards after the transfer of a controlling interest to Mr McKay, it wouldhave to prove that there was an agreement ceding such control to him. There is noevidence that that was the case and the Crown did not seek to argue that there wasevidence from which I could reach the conclusion, beyond reasonable doubt, thatMr Bublitz assumed control at that point. The Crown's case, of course, was thatMr Bublitz had always had control of Viaduct but I have rejected that proposition interms of the definition in the accounting standards.The nature of control in terms of the "real or effective control" definition in theCrown guarantee[221] It is unnecessary for me to consider the accounting standards any further. ForCharges 10 to 15, the Crown relies alternatively on the definition of "control"contained in the replacement Crown guarantee which applied to both Viaduct andMutual from the date Mr Bublitz's company, Argus Capital Limited, acquired 60 percent of the shares on 11 December 2009. On 8 December 2009, Mutual and the Crownhad executed a replacement deed of guarantee containing restricted related partytransactions.[222] As the particulars of charges 10, 11 and 12 require proof by the Crown thatMr Bublitz controlled both Mutual and Viaduct, the real issue is whether the Crownhas proved beyond reasonable doubt that Mr Bublitz controlled Viaduct in terms ofthe "real or effective control" definition at the relevant times, namely:(a) between 25 January 2010 and 11 February 2010 (charge 10);(b) between 14 March 2010 and 17 March 2010 (charge 11); and(c) between 5 April 2010 and 27 April 2010 (charge 12).[223] Moreover, proof of such control in terms of the alternative definition forms anecessary element of charges 14 and 15 which are predicated on Mr Bublitz's havingreached the related party provisions of the replacement Crown guarantee as alleged incharges 10 to 13. I deal separately with whether Mr Bublitz was in control of bothMutual and Hilltop Ridge Farms Limited between 26 April 2010 and 4 June 2010 asalleged in Charge 13.What is meant by "real or effective"control?[224] I repeat the relevant portions of the alternative definition of "control. Itprovides that entity (or person) B has control over entity A if:B is able to exercise real or effective control, directly or indirectly, over A orover a material part of A's business or affairs (whether pursuant to a contract,an arrangement or an understanding, as a result of the ownership or control ofsecurities or other interests in or issued by A, or otherwise) .[225] I was not addressed by counsel on the meaning of "real or effective" control,no doubt because the words need no explanation. The question is whether Mr Bublitzactually exercised control of the companies or over a material part of the companies'business in practice, by direct or indirect means, at the relevant times. A contract orother arrangement, or a shareholding or other interest, may provide real or effectivecontrol, but they are not prerequisites. I accept that for the purposes of applying the"real or effective" control test, just as for the "power to govern" test under theaccounting standards, control cannot be exercised by more than one entity or person.[226] Evidence of what actually occurred is more directly relevant and probative ofwhether Mr Bublitz exercised real or effective control than it is of the existence asecret, binding agreement giving him that control. I turn to the Crown's propositionsabout the evidence of what was done demonstrating that Mr Bublitz had control ofboth Mutual and Viaduct.Control of Mutual Finance[227] Notwithstanding the various permutations of share ownership of the Hunterentities, it is clear that Mr Bublitz controlled Argus Capital Limited, the purchaser ofthe Mutual shares, as he confirmed in an email dated 8 December 2009 to Mutual'strustee. He said that Argus Capital Limited would be:... owned & controlled by interests associated with myself/Hunter Capital.Lance Morrison will resign as a director & shareholder, as he was asked toform the SPV for me.[228] Defence counsel accept that Mutual was controlled by Mr Bublitz.Did Mr Bublitz have "real or effective" control of Viaduct?Factors leading to conclusion that Mr Bublitz had real or effective control of Viaduct[229] I have held that I cannot be sure that control of Viaduct was ceded toMr Bublitz by Mr Wevers and/or Mr McKay at any stage under an agreement thatengaged the definition of "control" in terms of the accounting standards.Nevertheless, I find that, notwithstanding the absence of an agreement, anypresumption that Mr McKay controlled Viaduct by reason of his 51 per centshareholding in Phoenix is displaced by significant evidence satisfying me beyonddoubt that Mr Bublitz had either directly or, at least, indirectly real or effective controlof Viaduct throughout the period of the alleged offending. In coming to that view, Irely among other things on a number of the circumstances referred to Mr Lee by theCrown in briefing him about the Crown's case that Mr Bublitz controlled Viaduct andwhich I am satisfied are supported by the evidence.49[230] The circumstances leading me to that conclusion include circumstancesexisting and actions taken both before the acquisition of Viaduct, during Mr Wevers'tenure and after his departure. I rely on the observations and findings I have alreadymade above concerning Mr Bublitz's involvement with Viaduct.[231] Mr Bublitz effectively owned and controlled the entities comprised in theHunter Group. His investments in the Hunter entities and their projects were at riskduring the relevant periods from late 2008 or early 2009 to Viaduct's receivership inMay 2010.[232] Immediately after the Viaduct acquisition, the administrative arrangements forHunter and Viaduct were closely integrated, including accommodation and staffing,with Viaduct relieving Hunter of significant administrative cost. There is no evidencethat Mr Wevers, Mr McKay or (later) Mr Blackwood, as Viaduct's directors, everquestioned whether the assumption of such costs by Viaduct was equitable. Moreover,the senior executives, including Mr Bublitz, worked interchangeably and, sometimes,contemporaneously on matters between or affecting Viaduct and the Hunter entities.Attempts to conceal or disguise Mr Bublitz's involvement[233] There can be no doubt that Mr Bublitz was keen to avoid full transparency inthe revised arrangements for the shareholdings and directorships in the Hunter Groupassets. The language he adopted – referring to associates acting as "fronts",49 See [173]-[174] above."warehousing" shares, and transferring assets "off balance sheet" – lends a devious airto the activities. While those arrangements were intended to distance Mr Bublitz fromcontrol of the Hunter entities rather than Viaduct, they demonstrate Mr Bublitz'sawareness of the implications of the related party provisions for Viaduct's dealingswith them.[234] Although it may be that Mr McKay was not as frank as he might have been inadvising Ms Taylor and Mr Barlow about what was intended post-acquisition when hesought their advice in early February 2009, I am not persuaded that that adds much tothe analysis of what actually occurred and whether Mr Bublitz's real or effectivecontrol can be inferred from the events that followed Viaduct's acquisition.[235] Mr Johnstone forcefully emphasised the failure of Mr McKay and Mr Weversto include in the 3 March 2009 prospectus for Viaduct any reference to Mr Bublitz'smembership of the "Viaduct Capital Team", despite the provision of biographies ofMr McMillan and Ms McCormack who were described as senior executives. Theomission of references to Mr Bublitz's role from the prospectus was deceptive andmisleading and should not have occurred in circumstances where full disclosure ofrelevant information was required. It gives rise to suspicion, even strong suspicion,that it was intended to conceal not only Mr Bublitz's apparent role as a deeply involvedlender and adviser but also what the Crown says was his actual role as the person incontrol of the governance of Viaduct. However, the deception is also reasonablyexplicable on the basis that Mr Bublitz, Mr Wevers and Mr McKay were anxious toavoid triggering the concerns of the trustee and/or Treasury rather than to actunlawfully because Mr Bublitz had actual control of Viaduct. The deception mighthave given rise to other proceedings, such as under s 9 of the Fair Trading Act 1986,but I am not persuaded that it compels the conclusion that Mr Bublitz had real oreffective control at that time.The management services agreement[236] Mr Johnstone refers to the terms of the management services agreemententered into by Mr Bublitz as demonstrating that his actual role went well beyondmerely securing and managing loans on behalf of Viaduct. The services agreementcontracted Mr Bublitz, among other things, to lending to, facilitating and managing anefficient and profitable business that met its agreed targets for growth, profitabilityand business activity. The Crown also points to the level of salary ($240,000 perannum) which Mr Bublitz enjoyed, equivalent to Mr Wevers' salary and double that ofMr McKay. While the nature and scope of the duties and the substantial salary mayindicate that Mr Bublitz was the person in control of Viaduct, I do not regard them ascompelling that conclusion. The duties described reflect Mr Bublitz's considerable, ifnot dominant, importance to the success of the venture and the extent to which he wasresponsible, in comparison to Mr Wevers and Mr McKay, for the acquisition ofViaduct on terms which did not require Mr Wevers to put any assets at risk. The salarystructure reflects that position.[237] In coming to that conclusion, I have not overlooked that Mr McKay's evidenceabout the changes to the services agreement reflecting a more lending oriented role,when the earlier version had appeared to indicate a greater involvement in ultimatedecision-making by Mr Bublitz than was desirable, was not entirely convincing. Thechanges were made only after Mr Bublitz's role was questioned by the Treasuryinvestigators. Nor do I overlook that Mr Wevers conceded, when interviewed byMr Weir and the FMA, that Mr Bublitz had undertaken services of the kind initiallyset out in the document.The Treasury investigation and withdrawal of the Crown guarantee[238] The investigation on behalf of Treasury at the end of March and April exposedconsiderable weaknesses in Viaduct's position regarding the Hunter assets. It is clearthat the Hunter Capital Property Trust was in extreme financial difficulty. It wasinsufficient for Mr Wevers to claim, without any proper basis, that Viaduct wascomfortable with the assets that had been acquired and the prices paid for them andthat it had additional surety by the way of an indemnity from a substantial party. Thereality is that Viaduct was exposed to considerable risk and that Mr Bublitz,Mr Wevers and Mr McKay knew that. Mr McKay's attempts to persuadePriceWaterhouseCoopers and the Treasury to a contrary view show signs ofdesperation and were plainly untenable. The attempt by Mr Wevers to backdate duediligence reports was similarly untruthful.[239] The Treasury's notice of the withdrawal of the Crown guarantee gave rise tofurther obfuscation by Mr Bublitz and Mr McKay, particularly, with Mr Bublitz tellingTreasury officials, much less than frankly, that he never intended to become heavilyinvolved in the affairs of Viaduct beyond managing a lending position and assistingwith the sourcing of loan transactions. There is no doubt that Mr Bublitz did not wantViaduct to do anything which put his investments at risk.[240] It is hardly surprising that the Treasury became suspicious of the truerelationship between the Hunter Group and Viaduct, and that the Treasury was not putoff making fuller enquiry by Mr Wevers' assurances that he was not a related party toHunter. In part, that may have been because Mr Wevers was unable to provide anindependent valuation for the transactions. It is not surprising either that the status ofthe loan files came under general discussion amongst Viaduct's executives andMr Bublitz as contractor in response to the Treasury's advice on 16 March 2009 that itwas considering appointing an inspector. The discussion resulted in the lateregistration of various security interests that Viaduct had acquired in purchasing theNorthgate, Homebush and other loans, as well as Hunter registering its generalsecurity agreement over Phoenix. Those steps, taken reactively rather than pro-actively, justify a suspicion that the arrangements between Hunter and Viaduct wereat less than arms' length and that there was an attempt to cover up the true nature ofthe relationship. But the closeness of the relationship would have been abundantlyclear to any knowledgeable person whether or not the securities had been put in placein a more timely fashion.[241] Similarly, Mr Wevers' attempt to explain that he had undertaken proper duediligence before the Hunter transactions were entered into was not credible. I amsatisfied that it was a retrospective but naïve attempt to satisfy an inquirer that Hunterand Viaduct were dealing on an ordinary commercial basis. The transfer of staff fromHunter to Viaduct on the acquisition of the finance company and the assumption byViaduct of Hunter's obligations regarding the premises and other expenses; thecontinuing close relationship between those working for Hunter and those working forViaduct, especially Mr McKay who continued to have senior, dual roles acting in theinterests of both organisations, make it unrealistic for the two companies to be seen asentirely separate.[242] I regard the disingenuous responses to the Treasury as tending to support theconclusion that Mr Bublitz was actually in control of Viaduct, and that Mr Wevers,Mr McKay and he intended to mislead the officials to conceal the true position at thattime. In turn, that supports a conclusion that Mr Bublitz remained in real or effectivecontrol of Viaduct after the end of September 2009.The 13 May 2009 "Policy Directive"on salaries[243] In addressing the implications of what occurred at about the time of thewithdrawal of the Crown guarantee from Viaduct and thereafter, a memorandum of13 May 2009 from Mr Bublitz to Mr Wevers requires careful consideration. In thatmemorandum, Mr Bublitz issued what he called a "Policy Directive" on a staffingmatter. The memorandum begins with the following paragraph:There is a significant amount of work to get through over the next 12 months,certainly to date we have had every conceivable hurdle thrown at us. Yet Iremain very confident and determined that we will work our way over theseissues. Further there are multiple viable business plans that come from this. Ipersonally look forward to working with you and each of the Senior Team andmeeting these challenges head on. We will need positive attitudes and attimes, leaps of faith.[244] The terms of that statement indicate that Mr Bublitz considered he was theundisputed leader of the group who had devised and then implemented the plan andwas then in control of Viaduct. They may also indicate, however, that he was merelya joint venturer with Mr Wevers through the close associations and common interestsbetween Hunter entities and Viaduct, and that he held very strong views as the personengaged in the management of Viaduct who had the most "skin in the game". By itself,the paragraph does not compel me to the exclusive view that Mr Bublitz was speakingas the real owner of the shares.[245] Mr Bublitz said next:There are going to be some tough calls that I will need to make over the next12 months, this is one of them. They are, however, integral to our success.[246] I accept that the reference to Mr Bublitz needing to make the tough calls mayrefer to decisions he might have to make about the Hunter projects, but I am satisfiedthat, in context, he was referring to decisions by or on behalf of Viaduct. The tone ofthe paragraph is strongly indicative that he regarded the decision-makingresponsibility as his alone.[247] The next paragraph reads:In these times we need to act prudently in terms of fiscal constraints, hence,due to tight cash-flow constraints I want you to ask all non-administration staffie Senior Executives (including MD/CEO) to cut base salaries by 40%effective from 1 June 2009.[248] Bearing in mind Mr Bublitz's role as a contractor and adviser, and takingaccount particularly of the risk which he had assumed as a lender to Viaduct (contraryto the absence of any financial risk carried by Mr McKay and Mr Wevers), thefirmness of his request that senior executives be asked to agree to a cut in base salariesis understandable. But, in reality, there is no indication that Mr Bublitz contemplatedthe possibility that Mr Wevers would refuse to make the request to the seniorexecutives to agree to a salary cut or that the executives would refuse to agree. Theself-labelled "directive" was written in terms which made it clear that Mr Bublitzexpected to Mr Wevers to carry out the steps which he sought to be taken.[249] I have contemplated the implications of this memorandum at length. Thequestion to be asked is not whether Mr Bublitz had a legal or contractual right or powerto tell the executives to take pay cuts but whether he actually exercised a form ofcontrol over Viaduct in issuing the directive and having it implemented. The firmnessof Mr Bublitz's directive and the fact that it was implemented, despite Mr McKay'sconcern that he was not being adequately remunerated for his efforts on behalf ofViaduct, point strongly in the direction of Mr Bublitz's control.Subsequent transactions said to favour Hunter over Viaduct[250] I do not consider it necessary to discuss in detail the subsequent transactionsupon which the Crown relies in support of its view that the decisions to continue totransact with the Hunter entities were designed solely to benefit the Hunter Group andprotect Mr Bublitz's investments in the various projects, rather than to make the bestuse of the investor funds for the benefit of the Viaduct investors. They include thetransactions undertaken after the withdrawal of the guarantee and the issuing of theamended prospectus, including Viaduct's engagement with Hilltop Ridge FarmsLimited.Hilltop Ridge Farms Limited[251] It would not be unreasonable to accept Mr Wevers' explanation that he placedconsiderable faith in Peter Mackie's involvement as sole director and shareholder ofthe company, given particularly that Mr Mackie had expertise which he called upon toassist Hilltop operationally. I accept Mr Mackie's evidence, however, that heconsidered himself to be out of his depth in dealing with the business and financialissues related to the project. I have noted that it was not until 23 September 2009 thatMr Mackie recorded in an email to Mr Bublitz and Mr Chevin his concerns aboutHilltop's financial situation and his personal guarantees. In submitting his resignationas a director, he referred to the financial difficulties as "a stumble" and expressed someconfidence in the ultimate success of the venture. But the decisions made to advanceViaduct investor funds to Hilltop during June, July and August 2009 were plainlypredicated on Hilltop's needs rather than the interests of Viaduct's investors.A conclusion that Mr Bublitz was in real or effective control of Hilltop is not necessaryto support the view that, if Mr Wevers and Mr McKay, acting consistently with theirduties as directors, had been in control of Viaduct at that time rather than Mr Bublitz,much closer scrutiny of the merits of the advances would have resulted.Capital note redemptions[252] Capital notes were issued to the Hunter Group on 13 and 16 February 2009 atnine per cent, convertible at Viaduct's option into ordinary shares, as part of thesecurity for Mr Bublitz's advance to fund the acquisition of Priority. I am satisfiedthat the Crown is right to rely on the extent to which key decisions concerning loanadvances and asset purchases by Viaduct benefited Hunter entities at the expense ofViaduct's best interests. Even Mr McKay conceded in evidence on occasions that therewas force in some of the Crown's propositions to that effect. To illustrate, I refer to anemail Mr Bublitz sent to Mr Chevin, Mr Wevers and Mr McKay on 1 September 2009,in which he said:GentsAs I said, redeem capital notes & stop the stuffing around. Also I need to"cash" in small amounts from VCL [Viaduct] to cover the following issues atthis "tenuous" time (I don't care how we structure it)-not going over HCG Groups O/D limits-Paying Mr Chevin-Paying Neville [Bublitz, Mr Bublitz's father]Then there is the more major issue of capital requirements to fund the majorprojects (in the short term) we have on namely Goatco [Hilltop], Helensville,Silverdale & Cashmere. Following yesterdays [sic] meeting on Goatco I cameaway & felt that clearly the consensus was if we can't get investors then wewere simply prepared to watch it go to the wall. This to me is not an option& as I said we either lend more money (somehow) to it or redeem capitalnotes. Now clearly shrinking the balance sheet doesn't help so a structuredloan is the better option.[253] A capital note for $50,000 was issued to Hunter that day. On 14 September2009, Mr McKay tidied up the paperwork. He wrote a letter (purportedly dated 25August 2009) to Mr Bublitz giving what purported to be five days' notice that Viaductintended to redeem a capital note of $100,000 in favour of Hunter on 1 September2009, "with $50,000 to be contemporaneously reinvested to a new capital note for aterm of 30 days; thus a net redemption of $50,000".[254] There is no doubt that, in his email of 1 September 2009 to the directors ofViaduct and Mr Chevin, Mr Bublitz was making a forceful demand of the threerecipients rather than merely giving advice or making a suggestion. Mr McKaycomplied with it.[255] There is considerable force in the reminder by counsel for the Crown that,despite Mr Wevers' concerns and Viaduct's poor financial prospects, the periodOctober to December 2009 both began and ended with further capital noteredemptions. I adopt as accurate the Crown's submissions on the Decemberredemptions. First, the decisions to redeem are reasonably explicable only as beingfor Mr Bublitz or Hunter's benefit. On 24 November 2009, Mr McKay had emailedMr Bublitz and Mr Chevin "wondering whether it is not time to put a bullet to all ofthis". He had lamented how little interest there was in Viaduct's prospectus ($25,000was invested by the end of November in response to the October prospectus).Demonstrating the inter-connectedness of the finance companies and the entities in theHunter Group Mr McKay sought to save, he wrote that he considered the acquisitionof Mutual to be partly a solution, but not enough of a solution. He observed that theycould not let Viaduct fall over due to its impacts on the wider group. Second, thenotices must have been post-dated as the decision to redeem could only have beenmade several days following the 4 December 2009 date of the redemption notice.[256] On the issue of the December redemptions, Mr McKay conceded in evidencethat it would have been better [for Viaduct] if Viaduct had not redeemed the capitalnotes "but, nevertheless, that's what happened". As Mr Johnstone said, it is apparentthat Mr McKay was not in control of what, on paper, was his own company.[257] The outcome of Viaduct's dealings with the Hunter entities was that little wasrecovered from the outstanding loans. Nothing, in fact, was recovered from the loansto Northgate, Homebush, Hilltop or NKE.[258] A substantial value of the capital notes that were held by Hunter was redeemedfor cash, for purposes obviously designed to benefit Hunter interests, at a time whenViaduct was suffering a cash crisis and the capital notes could have been converted toequity at Viaduct's election, as recommended by Standard and Poors on8 October 2009. Instead, it was resolved that $1million of capital notes would beredeemed for cash to provide Hunter with the funds it required to purchase Mutual.The evidence establishes that those steps were taken at Mr Bublitz's direction. On17 September 2009, Mr Wevers sent an internal memorandum to Mr Bublitz sayingthat he could not agree to any further redemption of capital notes or any increase "inpayments to you". He said that was because he could not do anything to jeopardiseViaduct's financial position knowing the risk to the equity position. He acknowledgedthat, in terms of the Hunter Group's projects, almost everything relied on cash beingable to be taken from Viaduct. It was then that he told Mr Bublitz that cash could onlycome from the sale of Mr Bublitz's assets, not from Viaduct. Among the steps heconsidered had to be taken were the sale of Mr Bublitz's house and the sale of theDockland's shares at a substantial loss. The upshot was that Mr Wevers resigned lessthan two weeks later.Other evidence of Mr Bublitz's real or effective control of Viaduct[259] Because Mr Bublitz did not give evidence, I was unable to make anyassessment of his personality during the hearing. I am able, however, to drawinferences from what he did and the way he did it so far as those matters aredemonstrated by his email correspondence. Mr Bublitz was synonymous with theHunter Group and its entities, over which he had ultimate control. Unlike Mr McKay,Mr Wevers and Mr Chevin, he was the person who would bear the principal cost ofthe failure of any of the Hunter projects and of the finance company. I was informedfrom the Bar and can accept, on the evidence, that the failure of the two financecompanies in the longer term resulted in Mr Bublitz losing some $2 million worth ofassets. And it would be unreasonable to lightly discount that Mr Bublitz was, throughthe Hunter Group's activities, a lender to Viaduct Capital and he was closely interestedin ensuring that decisions were made by Viaduct that did not impact adversely on thevalue of his assets. He was by far the most successful of the businessmen engaged inthis enterprise and plainly the dominant force in the Group, both because of theposition he held as the person ultimately in control of the Hunter Group and by hisdirect and forceful manner.[260] I have no doubt that, although the other executives were influential in theplanning and decision-making before and after the acquisition of Priority, Mr Bublitzhad the ability to exercise real and effective control of Viaduct whenever he consideredit necessary to do so to protect or advance his overall interests. There is no evidencethat any significant decision affecting Viaduct on a matter going to the governance ofthe company was made by Mr McKay or Mr Wevers contrary to Mr Bublitz's wishesor without his involvement. The major disagreement between Mr Bublitz and MrWevers in September 2009 about the direction in which Viaduct should be takensimply resulted in Mr Wevers' departure.[261] I rely also on assertions by Mr Bublitz, consistently with his having controlover Viaduct, at a meeting with Kiwibank representatives on 31 March 2010.Mr Bublitz was recorded as advising the bank that the cancellation of Viaduct's Crownguarantee had badly damaged the finance company's name and that it was his intentionto trade Viaduct for 12 to 18 months and then potentially merge it with Mutual Finance.There is no evidence that the record did not accurately reflect Mr Bublitz's statementsor his intentions. Mr McKay was not recorded as having been present at that meeting;Mr Blackwood attended as a director of Viaduct.[262] The evidence of Sandra Groom, who was engaged in a finance role for bothViaduct and Mutual, and some of the smaller Hunter entities, is pertinent. Ms Groomsaid that, in undertaking her duties on behalf of Viaduct, she reported to Mr McKayand received instructions from him but her understanding from her observations wasthat it was Mr Bublitz who had ultimate responsibility for Viaduct Capital, MutualFinance, Hilltop Ridge Farms and all the other entities with which she was dealing.She said Mr Bublitz was privy to the discussions about the affairs of those entities andshe could not recall any major transactions that were undertaken of which Mr Bublitzwas not aware. Ms Groom's evidence was that when she first started working atViaduct Capital she was told by Mr McKay that, "on paper", Mr Bublitz had noinvolvement with the company. She said, however, that from what she observed on aday-to-day basis she came to the conclusion that Mr Bublitz had ultimateresponsibility and the ultimate ability to influence the decisions that were made. Shebased this view on the dynamic she observed within the office and the way she sawthe business being managed as a group of companies, with Mr Bublitz havingoversight and making decisions for the benefit of the overall group. While I acceptthat that is opinion evidence not requiring any expertise, it is relevant and admissibleto explain the respective roles which Ms Groom observed Mr McKay and Mr Bublitzto fulfil.50 It tends to confirm my own conclusions, reached independently, from thenature of the correspondence and the decisions that were taken.[263] When Phoenix was placed into liquidation on 24 November 2010, thearrangements were made by Mr Bublitz. He instructed Mr Steven Khov of WaterstoneInsolvency to act as liquidator for four companies, including Argus Capital Limitedand Phoenix. Mr Bublitz personally guaranteed payment of the Phoenix liquidators'fees and eventually paid the costs of the liquidation through a Hunter Group entity. Itwas apparent that, on 29 October 2010, Mr McKay had not known whether steps hadbeen taken for Phoenix to be liquidated, notwithstanding that he was a 51 per cent50 Evidence Act 2006, ss 23 and 24.shareholder of the company. Mr McKay and Mr and Mrs Wevers eventually signedthe Phoenix shareholders' resolution for the appointment of a liquidator, but onlyMr Bublitz and his sister Lara McCormick were recorded as having attended the initialinsolvency meeting with the liquidators on 24 November 2010.[264] In complex cases such as this, a seemingly inconsequential piece of evidencesometimes captures the essence of a position one or other of the parties is advocating.On 29 March 2010, Mr McKay sent an email to Mr Bublitz, Mr Blackwood andMr Chevin (using his own and the recipients' personal email addresses) which neatlyencapsulates the Crown's core proposition on the defendants' motivations.Apparently, Mr McKay was responding to a question Mr Bublitz asked him that dayabout why it was so difficult to get anything like information memoranda and capitalraisings done. Mr McKay said:We are spending a huge amount of time every week fighting fires - be itKiwibank, IRD, Hilltop creditors, keeping VCL afloat ... all these issues aremajor drains in time that is not being dedicated to 'operating the business' - itfeels like a full time job just to keep on top of the cash flow and cashmanagement issues around the group because cash is so tight. We are barelyrunning the businesses that we have because so much time is devoted tostopping it all from falling over ...What is the business of Hunter Capital?? If it is to run a finance company thenlets just do that, if it is to do property developments then do just that ... Apartfrom digging PB out of the shit just what are we trying to achieve??[265] Not much more needs to be said. It is plain that the focus of the efforts ofMr Bublitz, Mr McKay, Mr Blackwood and Mr Chevin in managing the affairs ofViaduct Capital and Mutual Finance was to save Mr Bublitz's investments in theHunter Group entities.Conclusion[266] I am sure Mr Bublitz had real or effective control of Viaduct at all timesrelevant to Charges 10, 11,12, 14 and 15.Charges 10 to 13 – Theft by a person in a special relationship[267] Charges 10, 11 and 12 allege breaches of the related party provisions in thereplacement Crown guarantee in that Mr Bublitz controlled both Viaduct and Mutualin terms of the "real or effective control" definition. My finding that he was in controlof Viaduct and the undisputed fact that he was in control of Mutual makes that elementof those three charges proved beyond reasonable doubt.[268] As I have observed already, Charge 13 which relates to loan advances made byMutual to Hilltop Ridge Farms Limited is founded, so far as the element of dualcontrol is concerned, on the allegation that Mr Bublitz was able to exercise real oreffective control, directly or indirectly, over both Hilltop and Mutual.Charge 13 – Mr Bublitz's real or effective control over Hilltop Ridge Farms Limited[269] I rely on previous general findings in concluding that, despite the warehousingof shares and other devices intended to conceal the true position, Mr Bublitz had theultimate beneficial ownership of and control over the Hunter entities, includingHilltop. The associates who acted as "fronts" for him put no assets at risk. Personalguarantees put in place to give an air of legitimacy were cancelled whenever it suitedMr Bublitz's interests, whether the decisions to do so was commercially reasonable ornot.[270] It is unnecessary to go much further for proof of Mr Bublitz's real or effectivecontrol over Hilltop than his own statement to the National Enforcement Unit of theMinistry of Economic Development in November 2010, in which he accepted that itwas he, rather than Mr Chevin, who made the key decisions about Hilltop. Thecompany was formed as an "off balance sheet special purpose vehicle" for the projectand although Mr Mackie was appointed sole director and shareholder I am satisfiedthat he was merely involved, because of his friendship with Mr Wevers, to provideadvice and some operational assistance from time to time. Mr Mackie expressedsurprise at his appointment as sole director and shareholder, claiming that he was notaware that that had occurred until he was asked to sign relevant documents. Heconfirmed that so far as that was concerned he simply did as he was directed byMr Bublitz and others. After he became the shareholder of the company, Mr Mackieprovided a cheque for $100 for the purchase, believing that that was the right thing todo. He had not been asked to make the payment and it was not clear on the evidencewhether the cheque was ever banked. Moreover, when Mr Mackie resigned as adirector and relinquished his shares, the directorship and the share ownership wereacquired by Mr Peter Hill, an associate of Mr Chevin, who joined the enterprisefollowing discussions with Mr Bublitz and Mr McKay. Mr McKay conceded inevidence that his view of Mr Hill's involvement at that time was that he was "a puppetshareholder-director".[271] On 12 February 2010, Mr McKay emailed Mr Bublitz, Mr Chevin and SallyRosenberg (who by then had become CEO of the project) regarding the compositionof the Hilltop Board for the purpose of an investor statement he was preparing. In it,he described Mr Bublitz as "the sponsor or 'visionary' and effectively the majorshareholder". A decision taken by Mr Bublitz, in directions given by him concerningHilltop's affairs from time to time confirm Mr McKay's opinion. I am satisfied beyondreasonable doubt, therefore, for the purposes of charge 13 that Mr Bublitz controlledboth Hilltop and Mutual at all relevant times.The other elements of Charges 10 to 13[272] I turn next to the other elements of charges 10 to 13. I am conscious of theneed for the Crown to prove that each element existed at the time of the alleged offenceunder each particular charge. However, the nature of the conduct of theViaduct/Mutual businesses and the related Hunter entities, including the knowledgeand involvement of the three defendants in their respective capacities, is such that it isappropriate to consider them globally.Mr Bublitz's control over Mutual's investor funds[273] It was not disputed that, if Mr Bublitz had control of Mutual (as was obviousand conceded), he had control over Mutual's investor funds.Mr Bublitz's intentional dealings in the transactions[274] It was not suggested that Mr Bublitz was not engaged either directly orindirectly with each of the transactions founding charges 10 to 13; namely, theacquisition by Mutual of part of the Homebush loan from Viaduct, the purchase byMutual of the Bruce (Northgate) loan from Viaduct, the purchase of the Hilltop loanfrom Viaduct and Mutual's loan advances to Hilltop.Related party transactions[275] It follows from Mr Bublitz's real and effective control of the relevanttransacting parties that, on each of the alleged occasions of offending, there weretransactions between related parties.Other particulars[276] The particulars alleged by the Crown in respect of each of these charges requirethe Crown to establish a breach of the related party restrictions in the replacementCrown guarantee because the transaction (or a series of linked or related transactions):(a) had a value exceeding 1 per cent of Mutual's total tangible assets;(b) involved Mr Bublitz having dual control of the transacting entities; and(c) required prior certification to the Crown in writing, by an independentexpert approved by the Crown in writing, that the transaction was, inthe opinion of the expert, on arms' length terms.[277] The analysis conducted by Mr Weir on behalf of the Financial MarketsAuthority established that between 31 December 2009 and 31 March 2010, one percent of Mutual's total tangible assets ranged between $64,300 and $100,000approximately. None of the transactions on which the Crown relies was under thethreshold.Certification of arms' length terms by independent expert[278] Under the Mutual Crown guarantee, related party transactions were permittedonly if an independent expert previously approved by the Crown in writing hadcertified prior to the transaction that it had been conducted on arms' length terms. Suchprior approval and certification was never obtained.[279] I accept the Crown's proposition that attempts by the defendants to rely onopinions expressed by Mr Bevan Wallace of Morgan Wallace Limited about the arms'length nature of the loan transfers from Viaduct to Mutual, so as to purportedly satisfypart of the terms upon which related party transactions could be sanctioned, cannotassist them. As the Crown submitted, Mr Wallace was not approved by the Treasuryin writing; Mr Wallace's reports followed the events they purported to consider and sowere not certified to the Crown in writing prior to the transactions being undertaken.Planning the reports was patently an after-event attempt by the defendants to justify tothe Treasury transactions of a kind that Mr Bublitz had assured the Treasury was notcontemplated.Breach of limit of one per cent of Mutual's total tangible assets[280] I am satisfied by the analysis undertaken by Mr Weir that in respect of each ofthe transactions relied upon in support of charges 10 to 13, the transaction exceededone per cent of Mutual's total tangible assets and, therefore, required the Crown's priorwritten consent which was not obtained.The defendants' knowledge and intent[281] The only remaining issue to be established in respect of each of the chargesagainst Mr Bublitz is whether he knew that the transactions were in breach of therestrictions and, in respect of Mr McKay and Mr Blackwood, that they assistedMr Bublitz in undertaking the transaction knowing that the transactions breached therestrictions.[282] The acquisition of Mutual Finance is the starting point for consideration ofwhat Mr Bublitz, Mr McKay and Mr Blackwood knew and intended so far as charges10 to 15 are concerned. However, the plans made at Pauanui to use a finance companyto fund Hunter Group activities provide a relevant backdrop. The way in which thedefendants (including Mr Blackwood after he joined Viaduct) managed Viaduct'saffairs, including by the acquisition of loans, the making of advances and theredemption of capital notes to support the activities of the Hunter entities is alsosignificant. It was, of course, vitally important for the success of the Pauanui plan forViaduct to be able to attract investor funds with the support of the Crown guarantee.When the guarantee was withdrawn, Viaduct's inwards flow of cash diminished to thepoint that, although a prospectus was issued by Viaduct in October 2009 as a short-term measure, attention turned to the acquisition of another finance company whichhad the benefit of the Crown guarantee.[283] Initially, it was proposed that Viaduct would be the purchaser of the business,Mutual Finance. Consistently with what I have held to be Mr Bublitz's control overViaduct, the proposals for the Viaduct purchase of another company were driven byMr Bublitz. He sought Mr McKay's and Mr Blackwood's input on whether, indirecting the terms of a draft offer letter, he had "missed anything" but, asMr Johnstone correctly submitted, there was no invitation by Mr Bublitz to Mr McKayor Mr Blackwood (the Viaduct directors) to comment about the identity of thepurchaser, the purchase price and instalment programme, vendor liabilities andongoing involvement, name, contact with the Treasury, shareholdings or governance.It was Mr Bublitz who signed the letter to Mutual. I do not accept Mr McKay'sevidence that Mr Bublitz's work was simply to form a proposal. In terms of decidingwhat was known and intended by Mr McKay and Mr Blackwood, it is significant thatthey were fully appraised of the details of Mr Bublitz's decisions.[284] Mr Blackwood attended the Viaduct/Mutual meetings with Mr Bublitz whoappeared to Mutual's then proprietor, Mr Lindsay Kincaid, to be in control of theViaduct side of the negotiations. I am satisfied that Mr McKay signed the offer as amere functionary and only because he was a director of Viaduct and, on paper, themajority shareholder in Phoenix which, in turn, held Viaduct's shares. Mr Blackwoodand Mr MacMillan conducted the due diligence examination of Mutual on behalf ofViaduct. Viaduct was dropped as the purchaser and substituted by Hunter CapitalGroup Limited. Mr McKay prepared a draft letter for Mr Bublitz and Mr Kincaid tosend to the Treasury setting out the scheme of the proposed acquisition, whichincluded the purchase of an initial 60 per cent stake by a cash payment, with twofurther acquisitions each of 20 per cent, on 31 March 2010 and 31 October 2010respectively. The final version of the letter was sent on 9 November 2009. Based onthe draft, it assured the Treasury that Hunter did not intend or propose to sell any assetsto Mutual or undertake any other form of capital restructuring. The letter also assuredthe Treasury that Hunter would not seek to significantly change the businessoperations of Mutual and, notably, stated that:(a)lthough Viaduct Capital is not a related party of MFL, any transactionscontemplated between MFL and Viaduct Capital will be treated as if they arerelated party transactions for the purposes of the Crown guarantee.[285] The assurances that were reiterated in the letter included the statements that:(a) Hunter did not intend to sell any assets to Mutual;(b) the operations of Mutual would remain largely intact and thatMr Lindsay Kincaid would remain a director;(c) Hunter did not intend to take full control of Mutual until 31 October2010.[286] The letter also assured the Treasury that there was no intention by either Hunteror Mutual that Viaduct Capital would have any ownership of Mutual or that therewould be directors in common between the two entities. It was said that both "MFLand Viaduct Capital will remain entirely separate entities". Furthermore, it wasasserted that Viaduct's activities in respect of MFL would be limited to sourcing andmanaging lending transactions.[287] Given the way in which Viaduct had been operated up to that point and bearingin mind the motivation for the acquisition of Mutual, Mr Bublitz's statements in theletter to the Treasury, which I find were known and acquiesced to by Mr McKay andMr Blackwood, were untrue and deliberately misleading. That the expression ofpresent intention was not truthful is demonstrated by how quickly Mr Bublitz,Mr McKay and Mr Blackwood assumed control of Mutual and ran it in conjunctionwith Viaduct. That proposition is proved by, among other things, the means by whichMutual was acquired and by the marginalisation of Mr Kincaid as a director. That wasachieved by dividing transactions up into "chunks" which meant that approvals couldbe given by Mr Bublitz alone operating under a $250,000 threshold which would haverequired approval by the board, including Mr Kincaid.[288] The Treasury declined to indicate any approval of the transaction but did saythat it would appreciate clarification on whether any of the current assets of Viaductwould be sold to Mutual. Mr Bublitz responded that Mutual "currently" did not intendto purchase any assets from Viaduct but he said that, if in the future Mutual didconsider purchasing assets from Viaduct, an independent expert would be employedto assess the merits of any such transaction and to ensure it was on arms' length terms.That assurance reflected Mr Bublitz's knowledge and understanding of the relatedparty limitations in the Mutual Crown guarantee.[289] Both Mr Blackwood and Mr McKay were deeply involved in the acquisitionprocess and they became discretionary beneficiaries of the Mutual Trust which wasestablished by Mr Bublitz. He appointed his company, Argus Capital Limited, astrustee to acquire investments primarily to provide an income stream for the benefit of"the beneficiaries", including Mr McKay and Mr Blackwood as discretionarybeneficiaries.[290] Argus Capital Limited, which was ultimately owned by Mr Bublitz's familycompany, Nicholson Trust limited, purchased Mutual on 11 December 2009, holdingits assets on trust for the Mutual Trust. It is simply not credible for Mr McKay to haveclaimed that he was not aware of the arrangement whereby Mutual would be acquiredon the basis of his being a discretionary beneficiary of the Trust which held Mutual'sshares as they were acquired as part of the staggered arrangements.[291] Bearing in mind the close working relationships, the roles of Mr McKay andMr Blackwood in all of the steps taken to acquire the finance company, and the extentto which each of them was involved in the operation of both Mutual and Viaduct afterMutual's acquisition, I am wholly satisfied that Mr McKay and Mr Blackwood werefully aware of the nature of the related party provisions in the Crown guarantee.What each of the defendants knew about the transactions forming the basis forcharges 10 to 13[292] It could not reasonably be suggested that Mr Bublitz did not know about thetransactions which are said to have been undertaken in breach of the related partyprovisions in Mutual's Crown guarantee: he was in control of the entities involved; heeither directed or was informed and approved of each transaction, either expressly orby silent acquiescence. As I have said, nothing was done contrary to Mr Bublitz'sintentions.[293] That each of the defendants was a knowing and active party to the transactionsunderlying the alleged offences is demonstrated graphically by Mr Chevin's record ofa brunch meeting held on 30 January 2010 in which the affairs of relevant Hunterentities, Viaduct and Mutual would be managed collectively by the defendants,Mr Chevin and other executives such as Mr MacMillan. Mr Chevin's note containeda heading:VCL liquidity (Slicing and Dicing)[294] Under that heading, the steps which I find were agreed to be taken included:(a) packaging up and selling of the last of the Viaduct loans to Mutual(contrary to the misleading indication given to the Treasury at the timeof the Mutual acquisition), resulting in between $300,000-$500,000 ofcash being obtained by Viaduct;(b) altering the discretions for loan sign-off to give Mr Bublitz alone theright to approve an advance, or under a higher threshold to giveMr Bublitz and one other the approval right, with full sign-off (by theboard) being required for larger amounts; and(c) a number of transactions involving the transfer of loans to Hunterentities between Mutual and Viaduct and other transactions intendedultimately to assist Viaduct's dwindling cash-flow.[295] As Mr McKay and the others recognised, the collapse of Viaduct would createmajor problems for the Hunter Group entities and Mutual. There can be no doubt thatboth Mutual and Viaduct were being governed by Mr Bublitz and managed byMr McKay and Mr Blackwood pursuant to an agreed plan. That was observed byMs Groom and, shortly before he resigned as a director, by Mr Kincaid. When, on24 February 2010, Mr McKay emailed the management team referring to a bigproblem with Viaduct's cash-flow, Mr Bublitz simply forwarded the email toMr Blackwood saying:Blackie:Please work some magic.It was around this time that Mr Bublitz emailed Kiwibank acknowledging the"interdependencies" between the Hunter Group entities.[296] On 25 March 2010, Mr Chevin sent an email to Mr McKay, Mr Blackwoodand Mr Bublitz which demonstrates that all pretence of avoiding related partytransactions had disappeared, at least internally. The email, which is headed "merrygo round of funds", begins:25/03 $220,000 Docklands SR, MFL buys slice 1. from VCL26/03 $230,000 MFL loan advance to NKE, on to various others (KB interest,creditors, et al)29/03 $220,000 Docklands (RB Person), MFL buys slice 2. from VCL31/03 $220,000 Docklands (RB Person), MFL buys slice 3. from VCL31/03 $230,000 MFL purchases $230,000 of the front end of VCL HTRFLloanThe reference to "RB Person" is to a person introduced by Mr Blackwood.[297] It is telling that Mr Chevin said:Please be warned that this keeps VCL ok, BUT, it does not solve all the variousHCL [Hunter Capital Limited] issues. Some are dealt to, but not enough ofthem.[298] I was encouraged by counsel for Mr McKay and Mr Blackwood to take theview that there was insufficient proof that each of them had played an active, knowingpart in the transactions on which Charges 10 to 13 are founded, and that they knew notonly that the transactions were between related parties but that they were also in breachof the limits requiring prior Crown approval. I am satisfied, however, that the onlyreasonable inference from the way in which the defendants operated after theacquisition of Mutual is that each of them was fully aware that what was done wasdone contrary to the obligations imposed by the Crown guarantee in the interests ofMutual's investors.[299] It was established by Mr Weir, the investigator engaged by the FinancialMarkets Authority, that Mutual purchased $3,923,365 in Viaduct loans by16 transactions. Although seven transactions were supported by reports consideringwhether the transaction was subject to arms' length commercial terms, none of thosereports were obtained and provided to the Crown before the transaction occurred.Viaduct advanced a further $793,373.53 to the Hunter Group entities and the variousprojects in which they were engaged.[300] As Mr Johnstone submitted, Mr McKay's and Mr Blackwood's incitement andassistance in those transactions are manifest. Mr McKay was directing whichtransactions needed to occur and when in order to keep Viaduct afloat. Mr Blackwoodreceived his emails, was present at the various cash-flow meetings and must be takento have encouraged these loan sales by Viaduct, a company of which he was regardedas joint managing director.[301] Although I accept that Mr Blackwood did not prepare all of the creditsubmissions intended to provide a façade of analysis as to the risks involved, he signedmany of them and I accept that he must have known about and authorised the others.It was Mr Blackwood who undertook the task of keeping Mr Kincaid onside andencouraging him, to the extent that his approval was sought for any transaction, toagree. It is clear Mr Blackwood fully understood the details of each transaction andthe implications in terms of the impact on cash-flow and the relationship to thetransaction limits in the Crown guarantee.Mr McKay's credibility[302] It follows from the conclusions I have just expressed that I do not acceptMr McKay's denials in evidence that he knew and intended that the transactions withwhich charges 10 to 13 are concerned involved:(a) Mr Bublitz's engagement in related party transactions because he hadreal or effective control of both Viaduct and Mutual and, whererelevant, Hilltop and(b) that the advanced breached the related party restrictions.[303] Having seen Mr McKay in the witness box over several days both givingevidence-in-chief and under cross-examination, and having read countless reports,letters and emails drafted by him, I am satisfied that Mr McKay was an extremelyknowledgeable and capable financial manager. He had a complete grasp of thedetailed information which he was required to obtain and understand in order to takea pivotal role in the "merry go round of funds" that had absorbed so much of hisattention over the period of more than a year from the time of the planning meeting atPauanui in January 2009 to the ultimate demise of the two finance companies late in2010. He also understood the implications of every transaction, many of which wereundertaken because he had alerted Mr Bublitz, Mr Blackwood and others to the needfor the transactions to be undertaken. Although Mr McKay had apparently plausibleexplanations for a number of the decisions made within the group which appeared tohave no genuine commercial purpose except in terms of the ultimate wellbeing of theHunter entities, there were occasions in the course of his evidence when he wasstumped for an answer. I found much of his evidence evasive under careful cross-examination by Mr Johnstone. Although I am prepared to accept that Mr McKay maynot have set out to act dishonestly in February 2009, I am satisfied beyond reasonabledoubt that from the acquisition of Mutual to the end of the downward spiral, he knewthat there had been a complete failure of compliance with his obligations and those ofMr Bublitz and Mr Blackwood under the Crown guarantee. His emails and those ofMr Chevin and others demonstrate that caution had been abandoned because of thedesperate circumstances in which they found themselves. As I said, they were reducedto digging Mr Bublitz out of the manure.Verdicts on Charges 10 to 15[304] I am satisfied beyond reasonable doubt, therefore, that each of the defendantsis guilty of charges 10, 11 and 12, and that Mr Bublitz and Mr Blackwood are guiltyof charge 13 (the loan advance by Mutual to Hilltop Ridge Farms Limited) withinwhich Mr McKay was not charged.Charges 14 and 15 - False statements by a promoter[305] I turn, finally, to charges 14 and 15 which allege that Mr Bublitz was guilty ofmaking false statements as a promoter by making or publishing the 3 March 2010Mutual Prospectus and the amended Prospectus of 28 April 2010.[306] Mutual registered its first prospectus under the new ownership on3 March 2010. It continued to provide information to prospective investors until itwas amended on 28 April 2010. Between 28 February 2010 and 30 April 2010, theoffer had resulted in an increase in Mutual's secured debenture stock of some$5 million. Mr Bublitz signed the offering as one of the directors, immediately belowa statement which read:The Directors of Mutual Finance Limited, after due enquiry by them inrelation to the period between 30 November 2009 and the date of theregistration of this Prospectus, are of the opinion that no circumstances havearisen that have a material adverse effect on:(a) the trading or profitability of Mutual Finance Limited;(b) the value of Mutual Finance Limited's assets; or(c) the ability of Mutual Finance Limited to pay its liabilities due withinthe next 12 months.[307] The prospectus also contained the directors' assurance, under the heading:OTHER MATERIAL MATTERS:There are no material matters relating to the Secured Stock offered by thisProspectus other than those set out in this Prospectus.[308] The Crown asserts that, at the time the prospectus was issued and thereafteruntil its amendment at the end of April 2010, Mutual's business was being conductedwith the aim of supporting Viaduct's business and indirectly the interests of the HunterGroup owned and controlled by Mr Bublitz. The transactions supporting thatproposition, which I accept as accurate, were well known to Mr Bublitz and becausethey were between related parties were highly material to the interests of prospectiveinvestors. I find that Mr Bublitz cannot have helped but to know that, and that heknew that the statement was false in that there were material matters which had notbeen disclosed.[309] The Crown also alleges that the prospectus was false in that it misled investorsas to the significance and benefit of the Crown guarantee as providing security both tothe investors and to the future health of Mutual.[310] The directors, including Mr Bublitz, said they were pleased to report thatMutual was one of the early recipients of a Crown guarantee which was said to provide"a great deal of comfort to [Mutual's] investors" but noted that the guarantee was setto expire on 12 October 2010. In considering regulatory risk, the prospectus recordedthat the directors were unable to determine the impact on the company's operationshould the Crown guarantee scheme not be extended or replaced.[311] The Crown submits that the failure to mention breaches of the Crownguarantee, particularly the prohibited related party transactions inherent in purchasingthe Homebush, Northgate or Hilltop loans and the subsequent advances wasmisleading. Those transactions put at risk the Crown guarantee which could have beenwithdrawn at short notice and with immediate detrimental effect to Mutual in the wayin which the loss of the guarantee had adversely affected Viaduct.[312] I have no doubt that Mr Bublitz was aware that the failure to disclose what Ihave held he knew to be breaches of the Crown guarantee was misleading in that suchactivities were inappropriate and would have justified the Treasury in immediatelywithdrawing the guarantee as it had done with Viaduct.[313] I have given careful consideration to the further proposition which theparticulars of Charge 14 require also to be proved; namely, that Mr Bublitz knew thatthe failure to alert investors to the prospect that the Crown guarantee might be removedbecause of the breaches of the related party provisions. It occurred to me that thatmight be too subtle a consideration to found a criminal charge. On reflection, however,I have decided that the enthusiastic reference by the directors to the "great deal ofcomfort" provided to investors by the guarantee was misleading without beingqualified by a reference to the fact that related party transactions had been undertakenwithout approval and in breach of the guarantee and that continuation of the guaranteewas at risk as a result. Having regard to Mr Bublitz's experience with the withdrawalof the Viaduct guarantee and the disastrous consequences for that company as a result,Mr Bublitz knew of the risk and was, at the very least, reckless in not drawing it to theattention of investors.[314] As the Crown properly submits, similar considerations apply in respect of themisleading statements of a similar kind provided in the amended prospectus issued on28 April 2010, which is the basis for Charge 15.Verdicts on Charges 14 and 15[315] I am satisfied beyond reasonable doubt, therefore, that Mr Bublitz is guilty ofcharges 14 and 15...........................................Toogood J