Clarke v Ministry of Business, Innovation and Employment
[2020] NZHC 63
•4 February 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2019-404-000193
[2020] NZHC 63
BETWEEN STUART CLARKE
Appellant
AND
MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT
Respondent
Hearing: 13 December 2019 (further submissions received on 20 and
23 December 2019)
Appearances:
J Grainger for the Appellant
J M Blythe and N E Town for the Respondent
Judgment:
4 February 2020
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Tuesday, 4 February 2020 at 9.00 a.m.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Mr J Grainger, Public Defence Service, Auckland
Ms J M Blythe and Ms N E Town, Meredith Connell, Office of the Crown Solicitor, Auckland
CLARKE v MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT [2020] NZHC 63 [4 February 2020]
Introduction
[1] On 12 March 2019, Stuart Francis Clarke was sentenced to three years’ imprisonment after pleading guilty to seven charges under the Insolvency Act 2006.1 The two lead charges were concealing and fraudulently removing property. He now appeals against sentence on two grounds:2
(a)There was an error in sentencing as the appellant accepted certain aggravating facts (relating to the value of his accountancy practice and his shareholding in the company Trinity Street Properties Ltd) for the purposes of sentencing to avoid a disputed fact hearing, and this acceptance of aggravating facts was induced by incorrect advice given by his previous counsel as to the likely sentence he would receive if he accepted those facts. If this ground is upheld, the appellant seeks to have his sentence quashed and the matter remitted to the District Court for a disputed facts hearing as to the value of his practice and shares in the company.
(b)In the alternative, the sentence imposed was manifestly excessive.
Factual background
[2] The appellant was a registered accountant operating an accounting practice under the name CK Accountants. On 27 March 2014, he was adjudicated bankrupt on the application of Westpac Bank. Westpac’s claim amounted to $322,342.95.
[3]On 13 February 2018, the appellant pleaded guilty to the following charges.
(a)Materially contributing to or increasing the extent of his insolvency by unjustifiable spending or extravagance in living3
[4] Westpac filed the application for the appellant’s adjudication on 6 December 2013. Between this date and the date of his adjudication on 27 March 2014 (a period
1 Ministry of Business, Innovation and Employment v Clarke [2019] NZDC 4645.
2 Criminal Procedure Act 2011, s 250.
3 Insolvency Act 2006, s 419(2).
of approximately 16 weeks), the appellant spent a total of $27,149.48 at restaurants and bars ($1,696.84 per week). He also withdrew a total of $29,525.60 in cash during this period ($1,845.35 per week).
[5] In the period after the date of his adjudication to 28 May 2014 (a period of approximately five weeks), the appellant spent a total $13,625.83 at restaurants and bars ($2,725.17 per week). He also withdrew a total of $13,860 in cash during this period ($2,772 per week).
[6]This spending totalled $84,160.91 over 21 weeks ($4,007.66 per week).
(b)Being an undischarged bankrupt, taking part in the management or control of a business without the consent of the Official Assignee or the Court, without reasonable excuse4
[7] The appellant continued to operate his accounting practice after he was adjudicated bankrupt. He continued to see clients, complete tax returns on behalf of clients, and receive tax refunds on behalf of clients. He also continued to receive payments of fees from clients.
[8] The appellant engaged Merilyn Mason as a practice manager prior to his bankruptcy and was responsible for paying her wages. He continued to employ Ms Mason until October 2014. He had also employed and supervised Maya Budyurina as a bookkeeper and was responsible for paying her wages. The appellant supervised and gave instructions to both Ms Mason and Ms Budyurina in the running of the business, including changing details on the Companies Register. The appellant was the sole accountant in the business and made significant decisions in respect of the business. At times, in his emails to the Official Assignee, the appellant’s email address would have the tag “CK Management and Tax Accountants”.
4 Sections 149(1)(a) and 436(1)(b).
(c)Failing without reasonable excuse to file a statement of affairs in the prescribed form with the Official Assignee5
[9] Following numerous requests, two summonses and an examination on oath, the appellant submitted a statement of affairs on 12 November 2014. It was, however, incomplete. Question 5 asked him to provide details of all the income he received. He crossed this part out and has never provided this information to the Official Assignee. Question 9(a) asked him for details of his household income and expenditure. He did not fill this in and instead wrote that these were “to be provided”. Up to the date of his plea, the appellant had not provided these in a complete form.
(d)Failing to keep and preserve proper record of transactions6
[10] The appellant failed to keep and preserve a proper record of the transactions for the period during the three years immediately prior to his adjudication, where he might reasonably be expected, because of his occupation or transactions for the period, to keep a record of those transactions, and failed to keep and preserve a proper record of the transactions in relation to 13 nominated companies and two nominated trusts.
(e)Failing or refusing, without reasonable excuse, to answer any question put to him by the Official Assignee7
[11] The Official Assignee made repeated requests for information about, and documents in relation to, eight nominated companies and two nominated trusts. The appellant either confirmed that he did hold documents relating to the nominated entities which the Official Assignee had requested, but did not provide the documents to the Official Assignee, or alternatively, he confirmed that there were relevant documents in relation to the nominated entities, but prevaricated in his answer by directing the Official Assignee to a third party to obtain them, rather than providing them directly to the Official Assignee.
5 Sections 67 and 433(1)(a).
6 Section 429(1).
7 Section 440(1)(c).
(f)Concealing funds, totalling $78,048.49, in an ANZ Bank account in the name Wellpark Trustees No 5 Ltd8
[12] Wellpark Trustees No 5 Ltd was incorporated on 8 December 2009. The appellant was the sole director from the date of incorporation until 1 March 2014. However, this change was only presented to the Companies Office on 16 April 2014 by Ms Mason. That is, until 16 April 2014, the appellant would have appeared on the Companies Register as the sole director of this company.
[13] The current sole director is Tracy Janine Perillo (also known as Tracy Kerr- Bell). She was appointed a director on 31 January 2014, although the change of particulars of director was only presented to the Companies Office on 28 March 2014 (the day after the appellant’s adjudication) by Ms Mason on instructions from the appellant. Despite Ms Perillo being the sole director of the company, the company was exclusively controlled by the appellant.
[14] The appellant was the sole signatory to the bank account in the name of Wellpark Trustees No 5 Ltd. The appellant was obliged to complete a statement of affairs and notify the Official Assignee of any bank accounts he controlled. He did not disclose this bank account or the funds in it. By this non-disclosure, he concealed the funds in the bank account from the Official Assignee. After the date of his adjudication, a total of $78,048.49 was deposited into this bank account. Some of this money comprised of fees from his accounting practice that he was prohibited from managing.
(g)Fraudulently removing property to the value of $500 or more by transferring his shares in Trinity Street Properties Ltd to Wellpark Nominees 2013 Ltd and then transferring his shares in Wellpark Trustees Ltd and Wellpark Nominees 2013 Ltd in each company to the other company to create a circular shareholding9
[15] Trinity Street Properties Ltd was incorporated on 17 August 2010. The appellant was a director until 31 January 2014 (though this change of particulars was
8 Section 420(2)(a).
9 Section 420(2)(c).
not presented to the Companies Office until 27 March 2014, meaning that the appellant was shown on the Companies Register as a director until the date of adjudication).
[16] Prior to the appellant’s adjudication, he owned 25 per cent of the shares in Trinity Street Properties Ltd. The appellant’s ex-spouse, Mary Kane, owned the remainder. The company owns a property at 30 Trinity Street, Ponsonby, Auckland. Prior to the appellant’s separation from his spouse, this property used to be the family home. The appellant’s ex-spouse and his children still live in the property.
[17] On the date of his adjudication (27 March 2014), the appellant was removed as a shareholder and replaced with Wellpark Nominees 2013 Ltd. Wellpark Nominees 2013 Ltd was effectively controlled by the appellant. This transfer was carried out on the appellant’s instructions in order to put this property out of the Official Assignee’s reach upon his adjudication.
[18] Wellpark Trustees Ltd was incorporated on 3 April 1998. The appellant was a director until 7 November 2014. Ms Kerr-Bell (also known as Ms Perillo) was appointed a director on 24 October 2014. Despite Ms Kerr-Bell’s involvement, the appellant had exclusive control of the company. The company was the sole shareholder of Wellpark Private Financial Ltd and Clearkleen Racking Systems Ltd, which were also controlled by the appellant. Both before and after his adjudication, the appellant operated his accounting business using these two companies.
[19] Wellpark Nominees 2013 Ltd was incorporated on 20 March 2013. While the company’s sole director from the date of incorporation was Ms Kerr-Bell, the company was effectively controlled by the appellant. The appellant was the sole shareholder in Wellpark Trustees Ltd and Wellpark Nominees 2013 Ltd from the date of their incorporation until the date of his adjudication.
[20] On the date of adjudication, 27 March 2014, the appellant’s shareholding in Wellpark Nominees 2013 Ltd was transferred to Wellpark Trustees Ltd. The appellant’s shareholding in Wellpark Trustees Ltd was also transferred to Wellpark Nominees 2013 Ltd. Essentially, the shareholding of both companies is circular. The appellant gave instructions for these changes to be made in order to put his
shareholdings in these companies out of the Official Assignee’s reach upon his adjudication.
[21] Of the seven charges to which the appellant pleaded guilty, four did not ascribe any monetary value to the offending (managing a business, failing to file a statement of affairs, failing to keep and preserve records, and failing to answer questions). Two further charges ascribed a monetary value in respect of which there was no issue (concealing funds of $78,048.49 in an ANZ Bank account in the name of Wellpark Trustees No 5 Ltd, and extravagant spending totalling $84,160.91 over a 21-week period following the filing of the application for the appellant’s adjudication).
[22] There was, however, one charge in respect of which there remained an issue as to the monetary value of the offending. As amended, the charge related to the fraudulent removal of property to the value of $500 or more by transferring his shares in Trinity Street Properties Ltd to Wellpark Nominees 2013 Ltd and the subsequent transfer of his shares in Wellpark Trustees Ltd and Wellpark Nominees 2013 Ltd, in each company to the other company, to create a circular shareholding.
[23] The prosecutor obtained two formal statements from a PriceWaterhouseCoopers partner specialising in restructuring and corporate finance. He valued the 25 per cent shareholding in Trinity Street Properties Ltd as between
$183,962 and $344,610, and the value of the appellant’s accounting business, which he operated through a subsidiary company of Wellpark Trustees Ltd, as between
$89,000 and $265,000.
[24] The appellant disputed those figures and sought a disputed facts hearing. He assesses the value of the shareholding in Trinity Street Properties Ltd as somewhere between $5,000 and $20,000 because there is, in fact, no market for a 25 per cent shareholding in a privately held company. He was of the view that it would be very difficult to realise the assets from the company. It may be that there would be someone who would buy the shareholding for a nominal value in the hope that one day his ex- spouse may put the company into liquidation, but he said that this would just be a hope.
[25] The appellant is also of the view that, in reality, CK Accountants had no value. Once he lost his tax agency status because of his bankruptcy, all his clients went elsewhere. The business leased premises and owned minimal chattels, such as old computers, printers and some office furniture.
[26] A disputed facts hearing was, therefore, set down for 30 October 2018. What happened at the hearing on 30 October 2018 is in dispute. I heard evidence from both the appellant and his trial counsel, Mr Bioletti, to which I will refer later. In the event, the appellant wrote out and signed a statement as follows:
I, Stuart Francis Clarke, agree for the purposes of sentencing that the value of the accountancy business is $100,000 and the value of the shares in Trinity Street Properties Limited is $180,000 – and on that basis we do not require a formal disputed facts hearing.
[27]The case was then adjourned for sentencing.
District Court sentencing
[28] Sentencing occurred on 12 March 2019. First of all, Judge K G Glubb reviewed the evidence in some detail. He then looked at the aggravating factors of the offending and expressed the view that the principal aggravating factor was planning and premeditation. The appellant was a chartered accountant and knew precisely what he was doing. The Judge said he embarked on a deliberate course of conduct to frustrate and defeat his creditors’ claims by failing to co-operate with the Official Assignee and by concealing and fraudulently removing property as specified. This demonstrated to the Judge a high degree of planning and premeditation.
[29] Then there was the extent of the loss and harm to the creditors. The Judge was of the view that a significant portion of the core claims of $1.7 million may well have been able to have been met from the property that was concealed, estimated by the Crown as between $351,717 and $717,658.49.10 The Judge then noted that the acknowledgement and acceptance of the value of $358,000 by the appellant.11
10 Which sums included the funds in the Wellpark Trustees No 5 Ltd bank account of $78,048.49.
11 Comprised of $180,000 for the Trinity Street Properties Ltd shares, $100,000 for the accounting practice and $78,048.49 in the Wellpark Trustees No 5 Ltd bank account.
[30] The Judge did not, however, reach any conclusion on the total amount concealed and fraudulently removed. He stated:12
[27] However, there is no way of precisely fixing that amount given you have steadfastly failed to co-operate with the Official Assignee to the extent that you failed to file a statement of affairs through to this day, you have failed to answer questions as required, and you failed to keep records of transactions or assets for the Official Assignee to assess. I am satisfied that that was ongoing obfuscation on your part. That is significant in the Court’s assessment.
[31] The Judge then referred to three further aggravating factors. First, there was the risk to the business community. The appellant continued to operate his accounting practice without consent after adjudication. He received funds and was required to account for his clients. The Judge thought there was an on-going risk to them at the time.
[32] Secondly, there was the impact on the victims, which the Judge regarded as significant. He said that business entities are entitled protection from this sort of loss and it affected them significantly.
[33] Thirdly, there was the duration of the offending, specifically, in continuing to manage his accounting practice. The appellant had continued to trade through to 12 November 2014, eight months after his adjudication.
[34] The Judge then referred to the purposes and principles of sentencing and the contents of a pre-sentence report. He then noted the submissions of both prosecution counsel and Mr Bioletti, assisting the Court.
[35] The Judge considered that the offending was discrete and required cumulative sentences. In setting a starting point, the Judge referred to a number of authorities.13 He was satisfied that the appropriate starting point on the most serious charges, that of concealing and fraudulently removing property, was one of 28 months’ imprisonment. He then turned to what he called the administrative offences: failing to file a statement
12 Ministry of Business, Innovation and Employment v Clarke [2019] NZDC 4645.
13 R v Holt [2006] DCR 669 (CA); R v Varjan CA97/03, 26 June 2003; R v Raymond CA183/01, 9 October 2001; Ministry of Economic Development v Rippin DC Auckland CRI-2012-004-5351, 26 February 2014, aff’d in Rippin v R [2014] NZCA 177; Ministry of Economic Development v Papa DC Manukau CRI-2009-092-14907, 2 June 2010; and R v King [2015] NZDC 24712.
of affairs, failing to keep and preserve records, and failing to answer questions. He uplifted the 28-month starting point by six months for these administrative offences.
[36] He then turned to the extravagant spending charge, which he saw as a deliberate course of conduct shortly before and then immediately after his adjudication. He adopted a starting point for the extravagant spending of six months’ imprisonment, which he added to the previous sentence. Finally, he turned to the last remaining charge of managing the accounting practice while he was bankrupt and adopted a further starting point of eight months’ imprisonment. This led the Judge to a revised starting point of 48 months’ imprisonment. He then stood back from that total and assessed whether, on the basis of totality, that was too high. He was satisfied that it was and pulled the figure back by eight months, which brought him back to 40 months’ imprisonment.
[37] From that, the Judge gave a 10 per cent credit to the appellant for his guilty pleas, which brought the final sentence down to one of 36 months’ imprisonment.
[38] With respect, the Judge’s sentencing approach is somewhat difficult to follow. Having made the above calculations, the Judge dealt with the individual charges as follows:
(a)On the charges of concealing property and fraudulently removing property, the appellant was sentenced to two years’ imprisonment;
(b)On the charge of failing without reasonable excuse to file a statement of affairs, the appellant was sentenced to four months’ imprisonment, cumulative on the fraudulently removing property charge;
(c)On the other administrative charges of failing to keep and preserve records and failing to answer questions, the appellant was sentenced to four months’ imprisonment, concurrent with the four months imposed cumulatively for the failing to file a statement of affairs;
(d)On the charge of materially contributing to or increasing the extent of insolvency by unjustified or extravagant expenditure, the appellant was sentenced to four months’ imprisonment, cumulative on the charge of failing to supply a statement of affairs; and
(e)On a charge of managing a business while an undischarged bankrupt, the appellant was sentenced to four months’ imprisonment, cumulative on the charge of unjustified or extravagant expenditure.
[39] Accordingly, the total sentence imposed was one of three years’ imprisonment. Ultimately, for the purposes of the appeal, what is relevant is not the sentencing approach adopted, but the end sentence imposed by the Judge, namely, three years’ imprisonment.
Previous cases
[40] I was referred to a number of cases, including sentencing notes from both the District Court and the High Court. Three decisions of the Court of Appeal are, however, of most relevance. Each involved an appeal against sentence imposed in the District Court or High Court.
[41] First, in R v Raymond, Mr Raymond was convicted of two charges after a five- day hearing in the Auckland District Court.14 The first charge was that he concealed part of his property, namely a Breitling watch valued about $2,000 and stereo equipment valued at about $35,000. The second charge was that he materially contributed to his insolvency by gambling, rash or hazardous speculation, unjustifiable spending or extravagance in living. The Judge found that Mr Raymond had leased an expensive motor vehicle and had a share in a helicopter, which together had cost between $8,000 and $10,000 per month. The Judge also found that Mr Raymond’s gambling had diminished his available estate by a sum well in excess of $100,000.
[42] In the District Court, Mr Raymond had been sentenced to six months’ imprisonment on the concealing property charge and a concurrent term of 13 months’
14 R v Raymond CA183/01, 9 October 2001.
imprisonment on the extravagant spending charge. Leave was given for Mr Raymond to apply for home detention.
[43]The Court of Appeal stated:
[42] We note that the Judge did not expressly address in his sentencing remarks ss 6 and 7 of the Criminal Justice Act. However, we are not convinced that the offending in this case is to be regarded as simply property offending. Insolvency is a statutory process, it enables debtors to be released from the burden of unmanageable debts at the expense of creditors. Its processes are dependent upon proper disclosure and co-operation with the Official Assignee. Dishonesty or fraudulent conduct which frustrates the proper administration of an insolvent’s estate is not easily detected. It goes to the heart of the system. In this respect it can be likened to interference with the course of justice.
[44]The Court of Appeal dismissed the appeal against sentence, noting:
[45] The totality of the offending involving both offences, the first having an element of fraud in the concealment of assets, and the second serious recklessness, or worse, in the dissipation of creditors’ money, leaves us in no doubt that the scale of offending fully warrants a sentence of imprisonment. It could not be said that misappropriation of moneys well in excess of
$100,000 in other circumstances should not be met with a custodial sentence.
[45] Secondly, in Burchell v R, Mr Burchell was convicted of two charges after trial in the High Court at Auckland.15 Both charges related to the carrying on of business while an undischarged bankrupt without the consent of the Official Assignee. They related to businesses that Mr Burchell continued to run after his bankruptcy. The first was a homestay business and the second was a property investment scheme under which Mr Burchell had sought to pool investors’ money to buy investment properties. The Crown estimated that the losses in respect of the homestay business may be in the region of $90,000 to $100,000. No property was ever purchased by the second business, but at least one person lost “what was for him a substantial sum of money”.16
[46] In the High Court, Mr Burchell was sentenced to nine months’ imprisonment on the first charge and a concurrent term of three months’ imprisonment on the second charge.
15 Burchell v R [2010] NZCA 252.
16 At [6], citing R v Burchell HC Auckland CRI-2005-044-7058, 4 December 2007 at [3].
[47] The Court of Appeal noted that in concluding that a term of nine months’ imprisonment was appropriate, the High Court Judge emphasised the protective nature of the legislation and the resultant need for deterrence. The Judge said the losses incurred were “not readily calculable”, but that even if they were less than half of the Crown’s estimate, people who had worked hard for their money had lost it.17
[48]The Court of Appeal stated:18
… the Judge made it clear the amounts involved were not the critical feature in sentencing. That reflected the evidence at trial, where the actual amounts involved were not at the forefront of the case. In part, this was because accurate records were not kept.
[49] The Court of Appeal concluded that the sentence imposed, while stern, was within the available range. The aggravating factors were seen as Mr Burchell’s blatant disregard for the conditions of his bankruptcy, the fact individuals lost money and the level of planning involved.
[50]The Court of Appeal stated:
[40] The Judge in sentencing relied on R v Holt. While there is no tariff for this offending, Courtney J’s approach [in the High Court] is consistent with that taken in Holt. This Court in Holt upheld an effective sentence of nine months imprisonment on two counts under s 128A of the Insolvency Act for similar offending. Both counts involved ongoing activity in the face of warnings from the Official Assignee.
(footnotes omitted)
[51] Thirdly, in Andrews v R, Mr Andrews was convicted of 11 charges after trial in the Tauranga District Court — seven charges of carrying on management of a business, one charge of obtaining credit of $100 or more, one charge of obtaining property on credit by false representation and two charges of concealing property.19
[52] In the District Court, Mr Andrews was sentenced to 15 months’ imprisonment. He did not challenge the term of imprisonment but appealed the Judge’s refusal to grant him leave to apply for a substituted sentence of home detention.
17 At [32].
18 At [35].
19 Andrews v R [2013] NZCA 281.
[53] The charge of obtaining credit related to a six-month fixed term rental contract, while the charge of obtaining credit by false representation lead to a debt of $1,566. As to the charges of concealing property, an analysis of a Kiwibank account showed Mr Andrews had received funds totalling $100,030.57, which had been deposited into that account.
[54]The Court of Appeal dismissed the appeal, stating:
[21] There is no tariff case for offending of this kind and we accept that imprisonment is not inevitable for this type of offending. However, judges sentencing on such offending are invariably concerned to reinforce the purpose of the legislation. As a result, deterrence, both general and personal, is usually a significant factor in sentencing. Recent similar cases, including those in which the possibility of home detention was specifically considered, have all resulted in terms of imprisonment being imposed.
Approach to appeal
[55] The Criminal Procedure Act 2011 sets out that a first appeal court must allow an appeal against sentence if it is satisfied that:20
(a)for any reason, there is an error in the sentence imposed on conviction; and
(b)a different sentence should be imposed.
[56] This court must point to an error made by the District Court, either in the Judge’s reasoning or shown by additional material considered on appeal.21 The error must be adequately significant for the appeal to be allowed — although the Criminal Procedure Act 2011 does not require the sentence to be ‘manifestly excessive’, this is a helpful concept when considering the seriousness of the error.22 If the Court determines that the appeal should be allowed on the basis of counsel error, the sentence can be remitted to the District Court.23
20 Criminal Procedure Act 2011, s 250.
21 Tutakangahau v R [2014] NZCA 279 at [30].
22 At [35].
23 Criminal Procedure Act 2011, s 251.
Appellant submissions
Trial counsel error
[57] A key issue for sentencing was the value of the property that the appellant concealed. At the disputed facts hearing on 30 October 2018, a question arose as to whether the appellant was able to rely on his own valuation of his accounting practice and 25 per cent share in Trinity Street Properties Ltd as opposed to seeking an independent valuation. He maintained they both had no real value. The respondent had obtained valuations from David Bridgman, a partner at PriceWaterhouseCoopers. The appellant disputed Mr Bridgman’s expertise in dealing with small and medium enterprises.
[58] If the value of the appellant’s accounting practice and 25 per cent share in Trinity Street Properties Ltd could not be determined on 30 October 2018, the next available date for a disputed facts hearing was 14 March 2019. The Judge stood the matter down to enable discussions between the parties. Following those discussions, the appellant signed a note accepting the value of the accounting practice was
$100,000 and the value of his shareholding in Trinity Street Properties Ltd was
$180,000. The presiding Judge found the difference between this valuation and respondent’s valuation was not so significant as to require a disputed facts hearing.
[59] The appellant now asserts that he was incorrectly advised by his trial counsel, Mr Bioletti. The appellant deposes in his affidavit that Mr Bioletti told him that if he accepted the figures of $100,000 and $180,000, he would likely be granted bail and receive a sentence of home detention.
[60] Counsel for the appellant submits that he should have had the opportunity to challenge those values at a disputed facts hearing and as such a miscarriage of justice occurred. Regarding the appropriateness of Mr Bioletti’s alleged advice about home detention, counsel pointed to cases suggesting that, even with the accepted valuation, imprisonment was still the most likely outcome given the other charges the appellant was facing.
Was the sentence manifestly excessive?
[61] Counsel for the appellant submits that the starting point for the two lead charges was excessive. Both charges related to the same type of offending: moving or hiding assets with the effect of obstructing the duties of the Official Assignee. The maximum penalty for each charge is three years’ imprisonment, so counsel submits a starting point of 28 months’ imprisonment represents the top end of the available sentence. Counsel referred to the following cases:
(a)In R v Raymond, the appellant was a third time bankrupt. He was concurrently sentenced to 13 months’ imprisonment for increasing the extent of his insolvency through gambling and extravagance in living, and six months’ imprisonment for concealing assets (a $2,000 watch and $35,000 stereo equipment). His appeal was dismissed.24
(b)In Ministry of Economic Development v Papa, the defendant was employed as a project manager for two years without the approval of the Official Assignee, receiving payments of $336,087.92 in relation to these business dealings. A starting point of 12 months’ imprisonment for concealing property and being involved in the administration of a business while bankrupt was adopted, which was commuted to home detention.25
(c)In Andrews v R, the appellant controlled and directed businesses relating to the sale of laser hair removal systems. He further concealed
$100,030.57 in a bank account. The District Court Judge described him as a serial liar and adopted a global starting point of 18 months’ imprisonment in relation to all offending. This starting point was not disturbed on appeal.26
24 R v Raymond CA183/01, 9 October 2001.
25 Ministry of Economic Development v Papa DC Manukau CRI-2009-092-14907, 2 June 2010.
26 Andrews v R [2013] NZCA 281.
(d)R v Rippin involved an offender concealing over $277,000 in an undisclosed bank account.27 A starting point of 18 months’ imprisonment was adopted. A 10 per cent discount was granted because the Official Assignee had failed to pursue matters, as well as 20 per cent and 10 per cent discounts for the offender’s ill health and good record. The end sentence was one of five months’ home detention, which was acknowledged by the offender’s counsel on appeal to be lenient.28
[62] Counsel accepts that, in the present case, the appellant’s premeditation and the significant value of the concealed and fraudulently removed property arguably makes the offending more serious than any of these cases. However, it is submitted that the offending is not so severe as to deserve a starting point of 28 months’ imprisonment. Counsel submits that a starting point in the range of two years’ imprisonment would have been appropriate.
[63] The appellant submits that the eight-month uplift for managing a business whilst an undischarged bankrupt was also manifestly excessive. The appellant did not cause any loss from continuing to run his business, which distinguishes this case from other cases. The offending was relatively unsophisticated compared to the appellant’s other offending.
Respondent submissions
Trial counsel error
[64] Counsel for the respondent submits that Mr Bioletti did not provide incorrect advice. In an affidavit for the Court, Mr Bioletti deposes that he did not advise the appellant that resolving the disputed facts issues would mean a sentence of home detention would be likely or that he would be granted bail. He did not suggest that the issue of bail was connected in any way to the factual dispute. While he did advise that any reduction in the estimated value of the concealed and fraudulently removed property would assist the appellant in terms of sentencing outcome, he did not advise
27 R v Rippin DC Auckland CRI-2012-004-5351, 6 November 2013.
28 Rippin v R [2014] NZCA 177 at [2].
it would make home detention likely. He states that as a matter of practice he never makes guarantees regarding sentencing outcomes and that, in this case in particular, he was aware that the respondent would still be seeking a sentence of imprisonment regardless of the reduction in the agreed value of the concealed and fraudulently removed property.
[65] Counsel for the respondent notes that, by the time of the disputed facts hearing, the prosecutor had made its position on sentencing clear. At the hearing on 30 October 2018, prior to the appellant signing instructions, the prosecutor confirmed that a sentence of imprisonment would still be sought, although the starting point would be less than five years. The value of the property was not the only important factor for sentencing, given the extensive nature of the appellant’s offending. The presiding Judge is recorded as advising the appellant, before he accepted the agreed values, as follows:
So what would happen today is it would go to a sentencing date for you to put up all your pleas in mitigation as to why you did this offending. The most aggravating feature of the offending is the fact you did it, sir, not so much about the values. The values are not perfect, the prosecution would disagree with you, they would say they were higher, you say they’re lower. This is a purely pragmatic amount that I think is not going to impact either way to your detriment or to your favour on the sentencing.
[66] The presiding Judge also said she would grant bail pending sentence to enable the appellant to formulate a case for home detention:
It gives him a better chance to be interviewed for his PAC report and, if he wants to put up an option of home detention, he can. I am not saying that is a possibility. It is very likely that [the prosecutor is] quite right that the seriousness of the charge is going to merit a full-time custodial sentence but I don’t agree that is absolute.
[67] Accordingly, counsel for the respondent submits it was extremely unlikely that the appellant had the impression he would receive home detention if he agreed values of $100,000 and $180,000 for his accounting practice and his shares in Trinity Street Properties Ltd. Counsel also submits that the appellant has not shown he has a reasonable prospect of success should the matter be remitted for a disputed facts hearing. He has not provided any independent expert evidence to support his
valuations despite being put on notice on 30 October 2018 that he could not give evidence as an expert in his own case.
Was the sentence manifestly excessive?
[68] As well as R v Raymond and R v Rippin, counsel for the respondent suggests R v Noel is relevant to the starting point.29 In that case, the defendant pleaded guilty to 10 charges, including concealing payments over one year worth $345,821 and obtaining credit as a bankrupt on six occasions, totalling $33,348.78. A global starting point of 18 months’ imprisonment was adopted for all charges.
[69] Counsel for the respondent submits the value of the property concealed by the appellant was higher than each of those cases and that the offending involved a higher level of premeditation. His conduct went beyond failing to disclose deposits into a bank account (as occurred in Rippin and Noel) or the existence of valuable property (as in Raymond). The offending was much more involved and he took proactive measures to put his property outside the reach of the Official Assignee, including putting figurehead directors in place and creating a circular shareholding structure. When these factors are considered, it is submitted that the starting point of 28 months’ imprisonment was within range.
[70] Counsel for the respondent also submits that the uplift for managing a business whilst bankrupt was not excessive. The appellant ran the business for over eight months. He provided financial services to the public, operating without supervision and supervising others in providing financial services. There was no financial loss to clients, but that is not the sole factor to be considered when assessing culpability.
Discussion
Trial counsel error
[71] In his affidavit, affirmed on 3 December 2019, the appellant states there were two matters he contested about the circumstances in which he signed the document agreeing values of his accounting practice and shares in Trinity Street Properties Ltd:
29 R v Noel DC North Shore CRI-2016-044-2237, 15 December 2016.
(a)He was told by Mr Bioletti that he would be in range to, and would likely receive, a sentence of home detention if he agreed the values, and would likely be granted bail; and
(b)He did not have the opportunity to review the disclosure relating to the case — in particular, the updated statement of Mr Bridgman prior to agreeing the values.
[72] In a reply affidavit, affirmed on 6 December 2019, Mr Bioletti states he did not advise the appellant that he would likely receive a sentence of home detention or be granted bail by agreeing the values. In terms of sentencing outcome, Mr Bioletti states he advised the appellant that any reduction in terms of the total value of property fraudulently removed would assist him at sentencing. Mr Bioletti states, as a matter of practice, he never makes any guarantees to clients about sentencing outcomes as that is a matter ultimately for the Court.
[73] The issue of trial counsel error only arose six months after the sentence was imposed on 12 March 2019. The original notice of appeal, signed by the appellant on 11 April 2019, contained only one ground of appeal, namely, the sentence was substantially excessive, relative to recent case law. The appeal was set down for hearing on 26 August 2019. Submissions were filed by his counsel on 12 August 2019. They reiterated the grounds of appeal as:
(a)The starting point on the lead charge of concealing and fraudulently removing property was excessive; and
(b)The uplift for managing a business while bankrupt was also excessive.
[74] On 16 August 2019, for the first time, counsel for the appellant advised the Court that the appellant wished to advance a further ground of appeal, namely, that a miscarriage of justice had occurred because when he agreed values on 20 October 2018 he believed that bail pending sentence was contingent on him agreeing to resolve the factual dispute without a hearing and this was (allegedly) done upon the receipt of incorrect legal advice from previous counsel about his likely sentence.
[75] When he gave evidence before me, however, the appellant resiled somewhat from his affidavit. He did not say that he was told by Mr Bioletti that he would likely receive a sentence of home detention if he agreed the values. Rather than being a likely sentence, the appellant told me in evidence-in-chief that Mr Bioletti advised him that home detention was still a possibility if he agreed the values. In cross- examination, he confirmed that evidence:
A.He said, his words were that it’s still a distinct possibility the Court still had the option of home detention. He didn’t say, “sign this, you will get home D”, he didn’t say that. He said that it was still a distinct possibility that home D was available to the Court to the Judge.
Q. Distinct possibility?
A. Yes.
[76] In his evidence, Mr Bioletti confirmed that he may have said to the appellant there was a possibility of home detention, but he was pretty cautious and would not have said to him “You’ll likely get home detention” because that is just not something he would say.
[77] A possibility, or even a distinct possibility, is quite different from a likelihood. I accept that Mr Bioletti advised the appellant that there was a possibility that he would receive a sentence of home detention. Mr Bioletti is, however, an experienced counsel and would not have told the appellant that home detention was the likely outcome. In evidence before me, the appellant did not say that he did.
[78] The advice that home detention was a possibility was, in any event, not wrong. A pre-sentence report prepared for the 23 March 2018 sentencing date recommended home detention. On 20 October 2018, the presiding Judge granted the appellant bail, which she said gave him a better chance to be interviewed for his PAC report and enabled him to put up an option of home detention, if he wanted to. She also said a full-time custodial sentence was not “absolute”. In Andrews, the Court of Appeal said that imprisonment was “not inevitable” for this type of offending.30
30 Andrews v R [2013] NZCA 281.
[79] As to bail, the appellant told me in cross-examination that Mr Bioletti told him, “Look, if we can progress this and get this going there is a likelihood that your bail will be reinstated”. On the other hand, Mr Bioletti told me in cross-examination that he did not advise the appellant that if he resolved matters by agreeing values he would be in a better position to make a bail application for him. Mr Bioletti said he did not factor the bail question into it because, as counsel, he was of the view that the Court would in any event be unlikely to remand the appellant in custody through to March of the following year for a disputed facts hearing.
[80] I agree with Mr Bioletti that the Court would have been unlikely to have remanded the appellant in custody for such a lengthy period when the maximum sentence for the lead offence, to which the appellant had pleaded guilty, was only three years’ imprisonment. The appellant had also not been remanded in custody when he had pleaded guilty on 13 February 2018, eight months earlier. I therefore accept Mr Bioletti’s evidence that he treated the question of bail separately from the agreement to values.
[81] Again, even if Mr Bioletti had told the appellant that if he agreed values there was a likelihood that his bail would be reinstated, which Mr Bioletti denies, that advice appears to have been correct, as the appellant was bailed. There was, therefore, no counsel error in that regard.
[82] In his affidavit, the appellant also complains that he did not have the opportunity to review the disclosure relating to the case — in particular, the updated statement of Mr Bridgman, prior to agreeing values. This complaint was not developed in counsel’s submission but, in any event, does not appear to have substance.
[83] Mr Bridgeman’s first formal statement, dated 14 September 2018, was 26 pages in length. He concluded that the value of the appellant’s accounting practice was most likely to have been between $89,000 and $295,000 and the value of his 25 per cent share in Trinity Street Properties Ltd was most likely to have been worth between $166,000 and $332,000 at the date of his bankruptcy. Mr Bridgman’s statement was served on the appellant on the same date. This was five weeks before
the disputed facts hearing on 20 October 2018 and at a time when the appellant was on bail.
[84] Mr Bridgman filed and served a second formal statement on 10 October 2018. It was 11 pages in length and revised his estimated value of the appellant’s shares in Trinity Street Properties Ltd on the basis that the appellant’s transfer of a 25 per cent shareholding (from an original shareholding of 50 per cent) to his former wife may have been invalid. This led Mr Bridgman to revise his estimate of the value of the appellant’s shareholding in Trinity Street Properties Ltd to have been between
$183,962 and $344,610. Mr Bridgman’s estimate of the value of the appellant’s accounting practice remained the same, as between $89,000 and $295,000.
[85] The appellant received Mr Bridgman’s second formal statement, in electronic form, two days before he was remanded in custody on 12 October 2018. I accept that he had not printed it out prior to his Court appearance on 12 October 2018 and therefore may not have been able to access it while on remand prior to the hearing on 20 October 2018. However, the appellant was an accountant and was experienced in valuing small and medium enterprises, such as his accounting practice, and shares in a property owning company. Mr Bridgman’s second formal statement was merely a revision of his first formal statement. It did not set out any radically new or different approach. The appellant was well aware of the case against him and, in particular, the valuations put forward by the prosecutor prior to the hearing on 20 October 2018. No disadvantage to the appellant has been shown by the receipt of Mr Bridgman’s second formal statement by him eight days before the hearing on 20 October 2018.
[86] Finally, I do not accept the appellant’s evidence that he would not have agreed values if he was aware that he would be looking at a sentence of imprisonment, or if he was aware that a sentence of imprisonment was the most likely outcome. The prosecutor had always sought a sentence of imprisonment and the appellant was well aware of that. He knew that even if he agreed values the prosecutor would remain unchanged in approach. This evidence is also inconsistent with his acceptance that he was only told home detention was a possibility and not a likelihood.
[87] In conclusion, on the evidence before the Court, I do not believe that Mr Bioletti gave incorrect advice to the appellant about his likely sentence or bail. I am satisfied that trial counsel error has not been established.
Was the sentence manifestly excessive?
[88] It is noteworthy that in previous cases, the Court has usually adopted a global starting point which encompasses all offending under the Insolvency Act. This was not the case here. The Judge split the offending into four separate groups: the property concealed or fraudulently removed; the administrative offences; the extravagant spending; and managing a business. A starting point was set for the concealing or fraudulent removal of property. The Judge then uplifted the original starting point for each of the other three groups before giving a discount for totality.
[89] The Court of Appeal has, however, emphasised on a number of occasions that what matters on appeal is the end sentence and not necessarily the process by which the end sentence is reached.31
[90] Standing back, it is clear that the appellant deliberately set out to conceal or fraudulently remove what property he could from the Official Assignee. In evidence before me, when asked why he had transferred the shares in Trinity Street Properties Ltd upon his adjudication, the appellant said he did that “simply for the purpose of tidiness”. When asked to expand on the concept of tidiness, the appellant replied:
I just wanted to put that, put that shareholding somewhere where it could just kind of rest forever without me having directly any involvement.
[91] The appellant also knew full well of his obligation to co-operate with the Official Assignee, but he again deliberately failed to co-operate. He blamed communication issues. Through his plea of guilty to the charge of extravagant spending, the appellant accepted that he had materially contributed to, or increased the extent of, his insolvency. The appellant also continued to operate his accounting practice when he was well aware he could not do so without the Official Assignee’s approval. He never made such an application.
31 See Simon France (ed) Adams on Criminal Law — Procedure (online looseleaf ed, Thomson Reuters) at [CPA250.05], citing Dellaway v R [2010] NZCA 100 at [22].
[92] I am of the view that the most significant factor in considering the question of whether the sentence was manifestly excessive is the maximum penalty for the lead offences of concealing and fraudulently removing property — a term of three years’ imprisonment. In sentencing the appellant, the Judge adopted a starting point of 28 months’ imprisonment (83 per cent of the maximum sentence).
[93] I agree with counsel for the appellant that the complexity and quantum of the offending is not so high as to put it in the category of the most serious cases, which a starting point of 28 months’ imprisonment represents. The property concealed totalled
$78,048.49, some of which was derived from fees charged by the appellant through his accounting practice. The property fraudulently removed was his share of the family home and shares in a company through which he operated his one-man accounting practice, the value of which he disputed but eventually agreed at the lowest end of the range assessed by the prosecution expert witness ($180,000 and $100,000).
[94] There could have been greater values involved or more steps taken to conceal or fraudulently remove property (such as moving it out of New Zealand). The appellant’s share of the family home has not been lost to the Official Assignee. I also see the assessment of the value of the appellant’s accounting practice as an academic exercise. No steps were taken to realise what, if any, value it had. The Official Assignee was well aware that the appellant was operating his accounting practice, both before and after adjudication. In some of his emails to the Official Assignee the appellant’s email address would have the tag “CK Management and Tax Accountants”.
[95] Bearing in mind the sentences imposed in the Court of Appeal cases, to which I have earlier referred, the starting point adopted for the charges of concealing and fraudulently removing property should have been no more than 18 months’ imprisonment (half the maximum sentence).
[96] I am also of the view that the uplift of the eight months’ imprisonment on the charge of managing a business without the consent of the Official Assignee was too high. As noted above, the Official Assignee was well aware that the appellant was continuing to operate his accounting practice after his adjudication. The appellant says he (misguidedly) continued to operate his practice to fulfil his obligation to clients and
to ensure their successful transfer to another accountant. Of significance, no loss to clients has been demonstrated. The appellant also did not set up or involve himself in a new business without the Official Assignee’s approval — he continued work as before.
[97] The appellant’s accounting practice was not a large business. It had minimal assets. It was, in effect, a one-man practice. In those circumstances, no more than a four month uplift was warranted.
[98] With the reduction in the sentences to be imposed for concealing and fraudulently removing property, and for managing a business without the Official Assignee’s consent, some adjustment is also required to the eight month reduction for totality. A reduction for totality is still required but should be no more than four months.
Result
[99] The appeal against sentence is allowed. The sentence of two years’ imprisonment on the charge of concealing and fraudulently removing property is quashed and replaced with a sentence of 15 months’ imprisonment. All other sentences are to remain the same — four months’ cumulative imprisonment on the administrative charges, the extravagant spending charge and the managing a business charge.
[100] The total sentence of three years’ imprisonment is therefore replaced with one of two years and three months’ imprisonment.
Woolford J
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