COURT OF APPEAL.

Dominion, Volume 4, Issue 1097, 8 April 1911, Page 14

COURT OF APPEAL.

DILEMMA OF A BANKRUPT. WAS HE WRONGFULLY CON.VICTED? MOTION FOR A NEW TRIAL. 5 The circumstanccs attaching to the bankruptcy of Waiter Francis Darby, of Auckland) occupied tho attention of the Court of Appeal yesterday, when bankrupt. appealed against his conviction and sought a neiv trial. Mr. F. Birl, with him Mr. E. W. Burton, appeared for appellant, and Mr. J. W. Salmond, Solicitor-General, for the Crown.

What tha Jury Found. The jury found that Darby, being adjudged' a bankrupt at Auckland, on April 19, 1910, contractcd a debt of £170 13s. 2d. with Koss and Glendining when he could not have had, at tho time that tho debt was contracted, any reasonable or probable expectation of being able to pay it and his other debts. Ho was also t'oimd guilty on five other counts similarly worded (except for the name of tho party to whom tho money was owiug). The bankrupt was also found guilty of failing to keep such books of account as aro usual and proper in the business carried oil by him, as sufficiently set forth his business transactions and disclosed his. financial position, as provided for in the statute. A plea of not guilty was entered to each ccimt. At tho conclus'on of the Supremo Court caso for the Crown counsel for tho prisoner submitted that thero was no ease to go to a jury to support a verdict for tho Crown upon the first six counts, and that the jury should be directed accordingly. His Honour held that there was a caso for a jury. The Court was not then asked to reserve the question whether its decision was right in point of law or not for the opinion of tho Court of Appeal:

The Court's Diraction. Counsel for the prisoner did not during tho trial ask tho Court to direct the jury that there was no evidence to support tlio count of having failed to kec-p proper books. _■ ■ In summing up on this count Mr. Justice Cooper, who tried tho case, said ho directed the jury as under on the seventh count —"1 directed the jury that tlic offence charged against prisoner in that count was that, within three years before the commencement of tlie bankruptcy, tho prisoner had failed to' keep such hooks of account as are usual and proper in tho business carried on by liiin, and as sufficiently set forth his business transactions and disclosed his financial .position. As tho prisoner was not charged with wilfully omitting to keep proper books of account "with intent to conceal the true state of liis affairs, but only with the offence set out in Sub-scction (d) of Section 138 of the Bankruptcy Act, I told the jury that the only question they had to consider on this*count was whether, in fact, lie did within the three, years before his bankruptcy keep tho usual and proper books for the class of business .carried on by liiin, and as sufficiently set forth liis business transactions and 'disclosed his financial position. I told tho jury that vjie fact that he had employed a bookkeeper wliomi-lio believed to b.e competent was no '"answer to'the charge'if tho books did not in fact comply with tlio statutory requisites, although such circumstance would be proper to consider in the degreo of punishment if the prisoner was convicted on that count; that the books kept before tho period of the commencement of tho tlireo years were not within the count, and that tho jury must consider only tho books kept from the commencement of tho three years beforo tho bankruptcy, and that it appeared to me that tho main question which the jury had to consider was whether the books opened by the accountant (Mr. Storicker) wero kept in such a way as to sufficiently set forth the bankrupt's .transactions and disclose his financial position." His Honour also said that ho agreed with Lord Eslicr that "it is not enough that there should be books with entries in them which would. require a prolonged examination by a skilled accountant in order to ascertain tho result of them," vet ho thought that a trader's books were sufficiently kept within the statutory requirements, if the trader's business transactions were recorded in the books kept by him with sufficient accuracy to enable the trader, at reasonable intervals, to ascertain beforo his bankruptcy (without unreasonable difficulty) his financial position; and to enable the Official Assignee (without unreasonable difficulty) to ascertain, after the trader's bankruptcy, the trader's business transaction for the period of three years beforo the bankruptcy, and tho trader's financial position during that time. . .

Crounds of Appeal. The jury found prisoner guilty upon all seven counts, and hfs counsel, before sentence was passed, asked his Honour to reserve tho following questions for tho Court of Appeal: — (1) AVas tho Judge right in law in holding that there was evidence to go to tlio jury upon which they could properly convict the prisoner upon tho first six counts of the indictment, or upon any of. them? (2) AVas ; there evidence to go to the jury upon which they could properly convict the prisoner upon the seventh count of tho indictment?.

Motion for a New Trial. Iu addition to tho argument of the questions of law, appellant moved that it bo ordered that the verdict in favour of • tho prosecution be sot aside, and that a new trial bo ordered oii tho ground that tho verdict was against tho weight of tho evidence. Mr. Earl said that Darby was charged under Section 138, Sub-Section B of tho Bankruptcy Act on six counts and on one count under the sarno section, pub-Section D. Ho was charged with having contracted a particular debt at a time when ho had no reasonable or proper expectation of being ablo to pay it. Tho seventh count was that ho failed to keep books of the standard required by Section 138 of tho Act. Counsel proceeded to compare tho English Act with tho New Zealand statuto on tho subject of debts. Tlio difference was. that tho English statute threw the onus on the prisoner, or bankrupt, but tlio onus in tho New Zealand statute, which was entirely penal, was thrown on tho Crown. Under tho Now Zoaland statute it was ncccssary to prove a knowledge of insolvency in the mind of the bankrupt. A crcat deal appeared to him to turn on this. As to tho charge of not keeping proper books, at the close of the case on appeal, bankrupt's counsel submitted that tho evidence was insufficient to convict.

Bankrupt's Business History. Darby, said Mr. Earl, commenced business with a small eapitnl of £50, five years before his bankruptcy. Ho commenced in a small way, his methods wero small, and the d r awings small. His system of keeping his books was by single entry. He was a good salesman, and got on very rapidly, and his business apparently outgrew his methods and his available capital. Up to May, 1909, he continued to keep Jui .hooks an the sijuds entry system,

but then found that his business bad outgrown his then methods. . He consequently found it necessary to increaso bis stalf, and introduced a public accountant to put his hooks in absolutely good order, and to open a set of books on tho double entry system. The instructions that he gave to the accountant were entirely proper in every way. He told the accountant that he required him to open a set of books in tho most up-to-date manner, so that jio (Darby) might know his position. The accountant's evidence on this point was that Darby asked him to put the books on a thoroughly business footing. Ho said that he would do this, and Darby told him that his business was outgrowing his staff, and he wanted his books put in thoroughly good order, so that ho could ascertain his position. The accountant had access to all the bank accounts. No instructions, Mr. Earl submitted, could be more proper and more complete than instructions of this kind. Darby carried on his business largely on borrowed capital. The business had outgrown the capital which be had commenced with, and ho then borrowed capital. Ho had traded at a profit for several years, and was solvent up to June, 1909, according to a witness for the Crown. According to his accountant's statement, he was not only solvent, but prosperous right through. Mr. Earl said that there was not a single bill, accommodation, or otherwise, that was not instanced in the books. Darby trusted entirely to the bookkeeper, who produced him a statement of assets and liabilities. The accountant made the mistake of assuming, in tho first balance-sheet that £1877 was the net amount of bill receivable, whereas the real total was £902. This was the initial source of error.

Proper and Rational Conduct. Bankrupt, who- knew nothing about accounts, was surely, counsel urged, entitled to rely on his adviser, the public accountant. In addition, ho had an apparently qualified' bookkeeper, and a lady clerk, so that his conduct, as far as duty to his creditors was concerned, was proper and rational. There was nothing to suggest any impropriety in bankrupt's position so-soon as he had cause for alarm. Directly his accounts showed a shrinkage from £28SG to £1011, he became alarmed, and did the right thing in consulting his banker. No single transaction was shown by the Crowii not to have been disclosed by tho books. ■ Tho Chief Justice remarked that tho payments to the bankrupt's brothers were not : shown. Mr. Earl submitted that these were not ordinary transactions. Surely, he added, a man was not to be liable to two • years' imprisonment becauso he omitted to put his brothers down for a small amount. ■ Mr. Justice Cooper: "The brother is, in reality, a creditor for £200, and proof has been admitted. Tho assumption is that he got the money from the brother, and put it into the business, and it does not show in tho books." Mr. Earl: "It is not a penal thing for a man to have a mistake in his' books." • Mr. Justice Denniston: "It shows bad bookkeeping.- If a man chose to trade, he t had to keep up to a certain standard of bookkeeping." Mr. Earl urged that the case made out -bv tho Crown was not that tho books did not disclose the transactions, but that they did not disclose them without considerable trouble. He proceeded to argue that tho difficulty in ascertaining the bankrupt's position could not have been very great as it was not unreasonable that it should take au accountant eleven weeks to produce a statement from the beginning of tho business The Chief Justice said that this was so if.the books showed the position without outside' inquiries. ■ Mr. Earl -urged that no accountant could, produce a statement of the kind without considerable inquiry outside. It was.a practice and a duty to do so. A Suggestion of Recklessness. Tho books may. have been behind, but that was no offence. Proceeding, Sir. Earl urged that, there had been no suggestion of fraud or improper dealing, although there had been a suggestion of recklessness. Counsel proceeded to deal, in detail ivith the statements furnished to Darby by his accountant. Tho former, he urged, 'was a salesman, and not an accountant. Mr. Justice Edwards said that there was certainly a serious responsibility on the accountant. Darby was purely a trader, perhaps, but ho could not help knowing the difference between £3-100 .worth of .bills and. the same , amount of ;bills in. part discounted, and in part pledged with his banker. He must have known this. Mr. Justice Cooper : "AYere not the jury justified in assuming that he did know?" Mr. Earl: "I submit not." He urged that there was no evidence at the time that Darby contracted certain debts that he was insolvent, lie was entitled to rely on the accountant's balance-sheets, provided that he did not deceive the accountant, and there was no suggestion that he did. Tho accountant had all the figures before him that were necessary to enable him to make up a proper balance-sheet. Counsel urged that the fact that a man dealt in Accommodation bills was not evidence of insolvency. Mr! Justice Denniston'thought that in .the, circumstances under notice it might be very strong evidence. ( The Bench was of opinion that Darby must have known his position when ho dealt with tho hills. Counsel proceeded to argue that tho balance-sheets or statements were entirely misleading. It., was asking too much' of the bankrupt, lie urged, to say that ho should have assumed that the accountant's balance-sheets contained gross errors, arid that, therefore, ho should not rely on them.

Dealings in Accommodation Bills. It was submitted that bankrupt's personal drawings from tho business had been small, being £150 a year in tho first few years, and never more than £250 a year. Darby, it was urged,' had been bona fide throughout, and directly Jio got a disquieting statement as to the position lie went to his bankers, and called a meeting of his creditors. This being so, how could the Crown say that lie knew that he was insolvent when he incurred the debts. Mr. Earl admitted that the bankrupt was certainly dealing in accommodation bills, but this was only a form of borrowing. It might bo an imprudent and a rash thing, but it was not a circumstance that should have removed from tho bankrupt's mind the belief that'he could pay his way.

The Bookkeeping. ' Mr. Burton commenced to address the Court on the system of bookkeeping just before tho Court rose at 4.30. Ho set out with tho legal proposition that a higher degree of proof is required in criminal than in civil cases, and that according to the authorities quoted the proof must amount to a moral certainty, and must exclude every other hypothesis than that of guilt. IJe then proceeded to deal with the bookkeeping, and contended first that down to September, 1308, it was admitted on the evidence that Darby was solvent, and therefore that his bookkeeping down to that date did not come into question. With - this latter point Mr. Justice Cooper expressed concurrence. Mr. Burton next argued that from the evidence of both Sterickcr and Warnock, accountants (witnesses for the Crown), that both could and both did make out without difficulty balancesheets for tho quarter ending December, 1008, and contended t-liat their own figures proved that they each had the same data h flute thorn in the booko

for -that period, and (allowing for Sterickcr's error of £971) arrived at arithmetically identical results. The Court then adjourned to Monday morning.

FURTHER FIXTURES. A number of further fixtures for the present sitting of the Court of Appeal were made yesterday morning. The Crown cases, W. H. Da wo v. the King and A. Black, G.' Moore, lind E. Nicliolls v. the King, will he heard on Monday. After these, a case—tho Law Practitioners Act in re J. F. Pullon, an Auckland solicitor, motion to show cause why he should not he dealt with under the punitive clauses of tho Act —will be taken. On Wednesday the Court will hear the appeal, C. M. Walker and Bessie Walker ,v. A. J. Litchfield, R. F. Coulter, J. Bell, ,T. Chaytor, G. li. E. Walker and tho Public Trustee.