The Supreme Court has earned some of its keep, in crisply reminding us of what was really in issue in the trial of the Lombard directors. In reversing the Court of Appeal decision that imprisonment was warranted, William Young J of the Supreme Court highlights the simple essence of the case, and reinforces some policy balance in the way such charges should be approached:

• "the appellants honestly believed that the prospectus was true. They had taken their responsibilities seriously. Lombard had taken advice on the wording of the prospectus from external advisers. There were no related-party loans and the company was, at least in general, properly run"
• "Overall, [the trial judge found them to be] honest men who took their responsibilities seriously but nonetheless, by reason of a misjudgement made in circumstances of pressure, were responsible for the issuing of a prospectus which was untrue as to liquidity".
• Deterrent sentences should be reserved for knowing wrongdoers ("offending which is either calculated or involves the offender having departed from what he or she recognised were appropriate levels of carefulness").
• Deterrence should not be for "people who have tried to perform their duties but, as a result of a misjudgement, have failed to do so"
• "Punishments which are disproportionately severe may result in too much deterrence, for instance discouraging people from taking on directorships" not to mention inflicting on all investors the huge costs of layer upon layer of back-covering 'due diligence' and compliance ritual, and D & O insurance, none of which adds to the profits of any investor, and probably diminishes no losses. Absent dishonesty, losses in business generally flow from risks assumed in conditions of uncertainty, in the hope of returns commensurate with those risks. When losses ensue without dishonesty the criminal law should not come anywhere near.
• Deterrent sentences (targetting future conduct) are wrong when dubsequent law changes will confine "criminal liability for false statements in prospectuses […] to those who have acted dishonestly or recklessly". In effect the Supreme Court judgment asks the Court of Appeal ' just what offences were you thinking of deterring, given that the Lombard directors would not be convicted under new law'.

It is all expressed in the customary polite language good courts use about each other. But I was particularly pleased to see the crisp correction of an embarrassing part of the Court of Appeal's talk-back radio style moralising. It particularly hurt at least one defendant who has shown a strong ethic of serving the public interest even to his own serious disadvantage.

The trial judge set out the truth, but it was ignored by the Court of Appeal, as the Supreme Court notes:

"it appears that the Court of Appeal may have treated as relevant the total losses suffered by investors in Lombard represented by the total amount owed as at 10 April 2008 of approximately $125 million less estimated recoveries of 15–22 cents in the dollar for secured investors."

That was ridiculous. Only $1.7m in new money came in as a result of offending conduct by the directors. Dobson J, the trial judge had pointed that out. What he did not explain was that the rest was effectively lost, as it was for nearly all finance companies, no matter how well run and honest they were,  from the time the GFC made mezzanine lending to property largely irrecoverable. When development timetables were abandoned in fear the land became unsaleable for anything near previous security values

The Supreme Court was not mislead "If a prospectus had either not been issued or, alternatively, had been issued in the [warning] terms proposed by the Judge, it is very likely that receivership would have soon followed. It is therefore far from clear that those who reinvested in the period 24 December 2007 to 2 April 2008 have necessarily suffered significant losses by reason of the prospectus having been issued in the terms that it was. For this reason, it is difficult to be confident that the actual losses caused by the appellants’ offending much exceeded the $1.7 million of new money which was invested during this period (less any recoveries which may be made).

This Supreme Court decision is the kind of cool correcting view we seek from a third level of appeal. The Court of Appeal has been reminded that they were wrong to reinterpret the facts to reach conclusions the trial judge rejected. It is not generally appropriate for an appeal court (which is not there to see the witnesses and does not see most of the written evidence) to decide that it has a better appreciation of the facts than the trial judge.