R v Rada Corporation Limited: Section 58 of the Securities Act 1978
183 Finally, we comment on what appears to be a drafting error in a 1982 amendment to section 58 of the Securities Act 1978. In this case six directors of Rada Corporation Limited and the company were charged indictably under section 58(2) of the Securities Act 1978 with being promoters of a prospectus that included untrue statements. The accused were all reasonably prominent members of the business community and the charges attracted wide publicity at the time.
184 The essence of the defence was that the statements were not untrue. However, an issue arose as to whether as an alternative defence the accused could say that whether or not the statement was true, they believed on reasonable grounds that it was true. Prior to the amendment to section 58 in 1982 it was quite explicit that this would have been a defence.
185 However, the literal wording of the 1982 amendment took away that alternative defence, as will be seen by comparing the two extracts reproduced below. One of these extracts is section 58 as it was in the 1978 Act, and the other is section 58 as amended in 1982.
Section 58 of the Securities Act 1978
"Criminal Liability for misstatements in prospectus - Where a prospectus that includes any untrue statement is issued, every person who signed the prospectus, or on whose behalf the prospectus was signed, for the purposes of section 41(b) of this Act commits an offence and is liable -
"(a) On conviction on indictment, to imprisonment for a term not exceeding 2 years or to a fine not exceeding $25,000, or to both; or
"(b) On summary conviction, to imprisonment for a term not exceeding 3 months or a fine not exceeding $15,000, or to both,
unless he proves either that the statement was immaterial or that he had reasonable grounds to believe and did, up to the time of the issue of the prospectus, believe that the statement was true."
Section 58 as amended in 1982
"Criminal liability for misstatement in advertisement or registered prospectus - (1) Where an advertisement that includes any untrue statement is distributed
"(s) The issuer of the securities referred to in the advertisement, if an individual; or
"(b) If the issuer of the securities is a body, every director thereof at the time the advertisement is distributed -
commits an offence.
"(2) Where a registered prospectus that includes any untrue statement is distributed, every person who signed the prospectus, or on whose behalf the registered prospectus was signed for the purposes of section 41(b) "of this Act, commits an offence.
"(3) Every person who commits an offence against this section is liable -
"(a) On conviction on indictment, to imprisonment for a term not exceeding 5 years or to a fine not exceeding $25,000, or to both; or
"(b) On summary conviction, to imprisonment for a term not exceeding 3 months or to a fine not exceeding $15,000, or to both, -
unless he proves, either that the statement was immaterial or that he had reasonable grounds to believe, and did, up to the time of the distribution of the advertisement or registered prospectus, believe that the statement was true."
186 In an application by the accused for a discharge under section 347 of the Crimes Act 1961 in R v Rada Corporation [1990] 3 NZLR 438, Wylie J held that the effect of the amendment was to remove the defence of belief of truth based on reasonable grounds and instead make section 58 one of absolute liability. The effect of having a genuine belief would then go to penalty, but not to conviction. Wylie J rejected the submission that Parliament could not have intended to change a criminal offence which contained the normal requirement of mens rea (that is, the mental element of an offence) to an absolute liability provision.
187 Information later obtained under the Official Information Act 1982, and from other sources, all confirmed that there had been no intention to change the nature of the liability. The significance of the change was such that two other High Court Judges had declined to interpret the amended section to impose absolute liability, presumably because absolute liability would be totally against a fundamental principle of the criminal law in relation to an offence of this kind.
188 Although in R v Rada Corporation (No. 2) [1990] 3 NZLR 453, Barker J found all of the accused not guilty, the consequence of what was apparently a defect in drafting, which had been through the full parliamentary process, was that the accused had to face trial where they were deprived of the usual and primary defence of a criminal trial: namely, that they did not have guilty minds. If that defence had been available it may well have been that the charges would not have been laid against all or a number of the accused, or the accused might have been successful in obtaining a discharge under section 347. In any event, because of an apparent defect in drafting the accused were wrongly exposed to a significantly added risk at trial.
189 Of the wording of section 58 that had the effect of imposing absolute liability, Barker J said, "I think that I should signal to the legislature the need for a clear statement of its intention in this regard." But, in spite of this clear signal from the Judge, at the time of writing (December 1993) section 58 has not been amended to correct the defect and accordingly absolute liability still applies in relation to misstatements in prospectuses.
The importance of defect free legislation
190 This example is an important one because it illustrates the adverse effect that a drafting error had on the accused in a particular case and, therefore, the importance of defect-free legislation. It is also a compelling argument for a quality system for legislation because it illustrates just how easily errors in legislation can lead to individuals and the community losing important rights and, further, that the costs stemming from defects in legislation can fall heavily on private individuals.
191 Furthermore, it also illustrates that, without a quality system, serious defects can go uncorrected for long periods; in this case, for many years and even after the High Court had drawn attention to the need for clarification of the law.