Downey v Ministry of Social Development

[2023] NZHC 2589

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CRI-2023-404-000446

[2023] NZHC 2589

BETWEEN

NATHAN DOWNEY

Appellant

AND

MINISTRY OF SOCIAL DEVELOPMENT

Respondent

Hearing:	11 September 2023
Appearances:	C Farquhar for the Appellant O M Salt for the Respondent
Judgment:	15 September 2023

JUDGMENT OF HARVEY J

This judgment is delivered by me on 15 September 2023 at 3 pm.

.....................................................

Registrar / Deputy Registrar

Solicitors:           Tucker & Co, Auckland

Meredith Connell, Auckland Counsel:           Claire Farquhar, Barrister, Auckland

DOWNEY v MINISTRY OF SOCIAL DEVELOPMENT [2023] NZHC 2589 [15 September 2023]

Introduction

[1]    Nathan Downey was convicted of 14 charges of dishonestly using a document after fraudulently acquiring approximately $196,000 from the government’s COVID- 19 wage subsidy scheme and unsuccessfully attempting to obtain a further $66,781. Of that amount, some $57,000 was paid to contractors and the balance spent on personal expenses. The full amount taken was eventually repaid. On 25 August 2023, Mr Downey  was  sentenced  to  20  and  a  half   month’s   imprisonment   by   Judge A M Wharepouri in the Manukau District Court.1

[2]    Mr Downey appeals against the decision to impose a sentence of imprisonment on three key grounds. First, the Judge failed to recognise and place any weight on significant personal mitigating features such as remorse, rehabilitative efforts, full restoration of the loss to MSD, and his low risk of reoffending. Secondly, the Judge erred by promoting the purposes of denunciation and deterrence as paramount when sentencing Mr Downey. Thirdly, the Judge erred in dismissing the argument that his rehabilitation was best completed in the community. In doing so, he failed to take account of the negative impacts of imprisonment. In short, Mr Downey argues that the Judge erred in not imposing a sentence of home detention.

[3]    The Ministry of Social Development (MSD) opposed the appeal. Mr Salt for MSD sought confirmation of the starting point imposed here to assist with future sentencings for this type  of  offending  in  the  District  Court.  Ms  Farquhar  for  Mr Downey agreed with that request.

[4]    The issue for determination on this appeal is whether Judge Wharepouri erred in imposing a sentence of imprisonment rather than one of home detention.

Offending

[5]    The COVID-19 Wage Subsidy became available on 17 March 2020. It was established by the government at that time to provide employers whose business had suffered a COVID-19 related decline with a subsidy to pay their employees.2

1      Ministry of Social Development v Downey [2023] NZDC 18670.

2      See Work and Income “2020 COVID-19 Wage Subsidy” < Mr Downey was the sole director and shareholder of Protective Systems Ltd (PSL). Between March 2020 and August 2020 he submitted 19 separate applications, 13 of which were successful, in the name of PSL for the wage subsidy. However, PSL never had any of its own employees. Mr Downey provided the details of numerous purported employees, some of whom were entirely fictitious, others who were people known to him, including as contractors who had previously completed work for PSL.

[7]As a result of the applications, and as foreshadowed, Mr Downey received

$196,076. Regarding the six applications that were declined, he had attempted to obtain just under $67,000. Around $57,000 was transferred to a number of contractors who did work for the company, but the majority was used to benefit Mr Downey personally. Some funds were applied to meet legitimate business expenses. However, analysis of PSL’s and Mr Downey’s bank accounts and financial records revealed that funds were spent on gambling, fast food, Ubers, adult entertainment and at bars and clubs.

District Court decision

[8]    Judge Wharepouri began by describing the wage subsidy scheme, which relied on a high-trust model to ensure aid was efficiently paid out to distressed businesses. To obtain the subsidy, businesses and self-employed individuals only needed to complete an online application via a Work and Income on line portal. Eligibility criteria received significant publicity and was also set out on the website. Two years after the scheme commenced, MSD carried out a substantial continuing work programme to ensure that those who received payments were properly entitled.

[9]    The Judge summarised the offending, noting that approximately $263,000 was a significant loss to MSD and the taxpayer. He described this as a “reasonably significant amount” and confirmed that the best way to measure Mr Downey’s overall criminality was by reference to this figure.  As mentioned, he also noted that roughly

$57,0003  of the total subsidy paid to PSL  was transferred to a number of contractors

who did work for the company, but  the majority of the sum  was used  to  benefit  Mr Downey. The Judge outlined how money was spent on personal items.

3      The Judge recorded $75,000 but I am satisfied this was a typographical error.

[10]   The Judge then noted there is no tariff case for dishonesty offending and listed a number of aggravating features. For example, that the offending was planned and calculated. It involved a degree of premeditation and could not be described as opportunistic. The sum defrauded  is  significant. The money taken  was  used  by  Mr Downey to enrich himself. Approximately three quarters of the sum obtained was used personally. The Judge highlighted that there was a breach of trust. The offending was more exploitative than a beneficiary case as it involved a greater afront to the value society places on helping those in need.

[11]   The Judge considered that the starting points in Moses v Police and Wu v Accident Compensation Corporation was four years’ imprisonment and Harnett v Ministry of Social Development four years, two months’ imprisonment.4 He found that Mr Downey’s offending was less than that in Moses, Wu, and Harnett. He then adopted a starting point of three years and 10 months imprisonment.

[12]   As to mitigating factors, the Judge referred to first, Mr Downey’s guilty plea and applied a “generous” discount of 25 per cent. Secondly, for his expression of remorse, shame and embarrassment, and his full reparation to MSD, albeit from an inheritance, a discount of 15 per cent was given. Thirdly, Mr Downey’s personal circumstances including his addiction issues with alcohol, methamphetamine and gambling which were exacerbated during the time of COVID-19. The Judge also noted the steps Mr Downey had taken to address these issues including an eight-week programme with the Community Alcohol and Drug Service, counselling sessions for gambling and with a behavioural specialist. A discount of 15 per cent was applied. Once these discounts were applied, the Judge found that the end sentence would be one of 20 and a half months’ imprisonment.

[13]   Judge Wharepouri then turned to consider whether home detention could be substituted for imprisonment. He acknowledged there was no presumption as to either sentencing outcome and he was required to carry out an assessment per ss 7 and 8 principles under the Sentencing Act 2002. The Judge referred to the need to deter Mr

4      Moses v Police CRI-2006-409-000133 HC Christchurch, 18 September 2006; Wu v Accident Compensation Corporation [2021] NZHC 3028; and Harnett v Ministry of Social Development [2018] NZHC 1160.

Downey from criminal behaviour in light of his previous offending. He considered Mr Downey’s rehabilitation could be served by referral to the drug treatment programme in prison than by release conditions to attend CADS or another programme. The Judge highlighted the need to deter repeated dishonesty and that denunciation and deterrence, “both general and specific” must be the key sentencing purposes. He was not prepared to substitute imprisonment with home detention.

Appellant’s submissions

[14]   Ms Farquhar highlighted that there is no presumption as to whether imprisonment or home detention is to be preferred and that a sentencing judge must evaluate all of the relevant purposes and principles of sentencing.5 Instead, there must be an individualised assessment of each defendant before the Court and their circumstances.6 Counsel pointed to authority which highlighted that judges should strive to avoid a custodial sentence where there is a genuine prospect of rehabilitation.7 Ms Farquhar submitted home detention can adequately serve the purposes of deterrence and denunciation.8

[15]   As to the first ground of appeal, counsel contended that the Judge should have placed substantial weight on all of the mitigating factors when sentencing. She argued that  the  sentencing  purpose  of  rehabilitation  and  reintegration  was  engaged.  Mr Downey attended a number of rehabilitative courses and had managed to address underlying behaviours that contributed to his offending. He also accepted that he needed to resign as a shareholder of the company. Counsel pointed to the report writers’ assessments that Mr Downey was at low risk of reoffending. Ms Farquhar submitted that the Judge failed to impose the least restrictive outcome in light of these mitigating features and did not take them into account.

[16]   Counsel referred to s 16 of the Act which refers to the desirability of keeping offenders in the community where there are no safety issues. In Rawiri v R, the Court

5      Citing R v Vhavha [2009] NZCA 588 at [29]; endorsed in Osman v R [2010] NZCA 199 at [20]. Also citing Manikpersadh v R [2011] NZCA 452 at [14]; Palmer v R [2016] NZCA 541 at [19]; James v R [2010] NZCA 206; and Parkin v R [2018] NZCA 404 at [42].

6      Hogan v Ministry of Social Development (2005) 23 CRNZ 500 (HC).

7      Citing R v Rawiri [2011] NZCA 244 at [22]; and R v Hill [2008] NZCA 41 at [37].

8      Citing R v Iosefa [2008] NZCA 452 at [41]; and Fairbrother v R [2013] NZCA 340 at [29]–[30].

of Appeal stated imprisonment should be the outcome of last resort.9 She submitted Mr Downey’s circumstances do not approach the point where such an outcome is required.

[17]   On the second ground of appeal, Ms Farquhar contended that the Judge erred by focusing only on denunciation and deterrence, to the exclusion of other purposes of sentencing. Counsel argued that the Judge made a further error of law by failing to acknowledge that a sentence of home detention can satisfy the purposes of denunciation and deterrence.

[18]   Ms Farquhar argued that the Judge erred by finding specific deterrence in   Mr Downey’s case particularly important, stating that Mr Downey’s “past brushes with the criminal justice system” had not deterred him from further offending. Counsel submitted that the Judge erred by relying on this past offending as:

(a)The only repetitive offending was for drink driving.

(b)All of Mr Downey’s convictions occurred while he was a young person (25 years or younger).

(c)None of the previous convictions had any bearing on the index offending.

(d)The fact that Mr Downey had successfully completed community- based sentences was not considered by the Judge.

(e)The principle of rational choice, which underlies deterrent sentencing policy, is less relevant where the choice to offend is constrained by mental disorder and addiction.

[19]   Accordingly, Ms Farquhar contended that specific deterrence was not a relevant purpose of sentencing in this case.

[20]   Counsel also argued that there is no need to deter the public from defrauding the wage subsidy scheme which is no longer available. General deterrence must be in

9      Rawiri v R, above n 7.

respect of the potential for similar payment schemes offered by the government in times of need.

[21]   Responding to Mr Salt’s submissions on R v Varjan, Ms Farquhar observed that the comment as to the appropriateness of imprisonment in fraud cases was in relation to setting the starting point, not the question of whether to impose home detention or imprisonment. This observation is made by the Judge in Grey v Serious Fraud Office.10 That case also noted that the Court of Appeal in Vargin granted leave to apply for home detention. Counsel submitted the comment was of limited assistance. The comments made in Burns v Police, referred to in the District Court decision, demonstrating a stern response and prioritising deterrence and denunciation, were again in relation to the starting point.11

[22]   On the third ground of appeal, Ms Farquhar submitted the Judge erred by referring to the appellant’s ability to complete rehabilitation while in prison. Counsel referred to research that discusses the negative effects of incarceration on a person.12 She submitted that the appellant’s rehabilitation is best ensured in the community where he can be supported by his partner and family. Counsel contacted the psychologist, Ms Bramhall, who stated that it would be unlikely Mr Downey would be prioritised for the Drug Treatment Programme and is currently held in Northland where the programme is not available. She submitted Mr Downey would not receive any substantial rehabilitation in prison.

[23]   Conversely, counsel contended that a standard condition of home detention is to attend rehabilitative programmes to the satisfaction of the probation officer, and counsel submitted rehabilitation is “built into” the home detention sentence. She also referred to Mr Downey’s desire to continue with the rehabilitative programmes he had engaged in prior to sentence. Further, Ms Farquhar argued that imprisonment must not be imposed only for the purposes of rehabilitation and reintegration,13 and Judge

10     Grey v Serious Fraud Office HC Auckland CRI-2010-404-476, 31 March 2011 at [31(e)].

11     Burns v Police [2016] NZHC 2116.

12     Dr Peter Gluckman “Using Evidence to Build A Better Justice System: The Challenge of Rising Prison Costs” (2018) The Office of the Prime Minister’s Chief Science Advisor.

13     Sentencing Act 2002, s 16.

Wharepouri appears to have justified the decision to imprison Mr Downey with reference to the availability of the programme.

[24]   Overall, Ms Farquhar submitted that the Judge failed to articulate why imprisonment was the least restrictive outcome possible in the circumstances. Counsel also noted that Mr Downey has now spent time in prison, and there has been publicity about his offending. Therefore, if the Court were to find an error and reconsider sentence, it could be satisfied that the deterrent effect has been met.

Respondent’s submissions

[25]   Mr Salt submitted that the Judge correctly exercised his discretion not to commute the sentence of imprisonment to one of home detention. As mentioned, the respondent also seeks confirmation that the starting point of three years 10 months’ imprisonment was within the available range, based on the aggravating factors of the offending. Mr Salt highlighted the need for wage subsidy fraud to be denounced and deterred to a high level because it involves a particularly egregious level of premeditated dishonesty.

[26]   Regarding the leading case of Varjan, counsel underscored the following aggravating features of the appellant’s offending:14

(a)the amount of the fraud and losses;

(b)the five months over which the appellant made repeated and sustained efforts to obtain funds, which were premeditated;

(c)the magnitude and sophistication of the offending; and

(d)the type of victim and abuse of trust.

[27]   Mr Salt submitted that these aggravating factors were stark, even when balanced against Mr Downey’s personal mitigating factors. He referred to the analogous comments of the Court of Appeal in R v Patterson:15

14     R v Rose [1990] 2 NZLR 522 (CA); Hogan v Ministry of Social Development (2005) 23 CRNZ 500 (HC); R v Varjan CA97/03, 26 June 2003; and Cole v Police [2001] 2 NZLR 139.

15     R v Patterson [2008] NZCA 75.

[20] As to the former alleged distinction, we accept that the number and vulnerability of Mr McKelvy’s victims warranted special condemnation. But it would be wrong to categorise Mr Patterson’s offending as “victimless” simply because the fraud was perpetrated on the State. In one sense, we are all victims of benefit fraud, and, as Woodhouse J remarked, we should not underestimate the erosion of confidence in the social welfare system that benefit fraud can cause.

[28]   He also made the point that although the funds were repaid, this was from a “windfall” inheritance. MSD had repeatedly requested the funds and it was likely it could have recovered the funds from him in civil proceedings in any case. In addition, while Mr Salt did not discredit Mr Downey’s addiction issues, he submitted the offending was demonstrative of greed.

[29]   In any event, counsel contended that the Judge gave a principled and well- reasoned decision as to why he was refusing to commute the sentence to one of home detention. He argued that in balancing the need for rehabilitation and the least restrictive outcome available in the circumstances against the need to denounce and deter conduct that took advantage of MSD’s “trust” during a national emergency, it was open to the Judge to find that a sentence of imprisonment should not be converted to home detention.

[30]   Mr Salt referred to R v Varjan where the Court stated in cases of major defalcations, misappropriation, schemes dishonestly to obtain money or property or where recidivism confirmed the need to protect the community, imprisonment is appropriate. Counsel submitted that Mr Downey’s offending reached that threshold. Mr Salt contended that reparation, and other rehabilitative steps taken by Mr Downey, were properly considered and weighed by the Judge. He also pointed out that generous discounts were given for rehabilitation and the guilty plea. Moreover, counsel observed, in response to Ms Farquhar’s submission on the public interest nature of the offending, the reporting that the result of the appeal, if home detention were imposed, could impact on public deterrence.

[31]   Mr Salt also made helpful written submissions as to the appropriate starting point which are considered below.

Approach on appeal

[32]   Sentence appeals are brought under s 250 of the Criminal Procedure Act 2011. An appeal against a sentence is considered as an appeal against the exercise of a discretion. For Mr Downey to be successful in this appeal, the Court must be satisfied that there was an error in the sentence imposed upon conviction and a different sentence should be imposed.16 The Court will intervene if the sentence is manifestly excessive or wrong in principle.17 If these factors are not satisfied, the appeal must be dismissed.18

[33]   In terms of the discretion to impose home detention, the Court can impose a period of home detention where it is satisfied that the purposes or purposes for which sentence is being imposed cannot be achieved by any less restrictive sentence or combination of sentences and the court would otherwise sentence the offender to a short-term sentence of imprisonment.19 The Court of Appeal has confirmed that the sentencing Judge must make a “considered and principled choice” between the two forms of sentence and identify which is the least restrictive taking into account all the purposes of sentencing.20

[34]   When considering a decision of the court below to refuse to impose home detention on appeal, it is “not an opportunity to review or revisit the merits”.21 Instead, the appellant must demonstrate an error by the Judge in exercising his or her sentencing discretion.

Discussion

[35]   In short, I am satisfied that the sentence imposed by Judge Wharepouri was not manifestly excessive nor wrong in principle. His comments on denunciation and deterrence are coloured by his previous discussion of the threats to community

16     Criminal Procedure Act 2011, s 250(2).

17     Tutakangahau v R [2014] NZCA 279, [2014] 3 NZLR 482 at [36].

18     Section 250(3).

19     Sentencing Act 2002, s 15A.

20     Fairbrother v R [2013] NZCA 340 at [30]–[31].

21     Fraser v R [2013] NZCA 250.

cohesion by this type of offending and the breach of the reliance placed by the State on applicants to act honestly when accessing the scheme (or schemes such as this).22

[36]   For instance, the Judge referenced the Minister of Finance’s statement that we “owe it to those workers and employers to make sure their good work isn’t being undermined by anyone abusing the scheme” and “have a duty to all New Zealanders to ensure taxpayer money is going where it is intended to support the economy”. The Judge also records the Minister’s statement that taxpayers “expect to see a fair process” and employers that offend “will be held to account”.

[37]The Judge also correctly stated:

[18] [T]here is a key difference making your breach of trust here more profound than that in a beneficiary case. It is one thing to defraud taxpayer monies from a government scheme set up to provide financial assistance to eligible persons in the normal operation of society, but it is another thing altogether to dishonestly obtain funds from an extraordinary fund established to help those affected by a widespread emergency where societal need is deeper and more far reaching than that which would be the case but for a national or regional disaster. The first is bad enough, but the latter is more exploitative, involving a greater afront to the value our society places on helping those in genuine need.

[38]Simon France J’s observations in Burns are also apposite:23

[11] The defrauding of the Red Cross assistance programme arose in a unique context. Concepts of denunciation and deterrence plainly loom large and a sentence at the top of the range for the underlying culpability factors is to be expected. As the [District Court] Judge observed, at a time when acts of bravery and kindness abounded, a minority saw an opportunity to exploit a terrible situation. Theirs was shameful conduct, and a stern response is appropriate.

[39]   Such considerations are relevant not only to setting the starting point but necessarily, by the reference in s 16 to s 7(1)(a) to (c), (e) (f) and (g), relevant to whether a sentence of imprisonment should be imposed.

[40]   Here the Judge was entitled to find that deterrence and denunciation weighed heavily, and indeed, were determinative in this case as to the type of sentence to be

22     See Ministry of Social Development, above n 1, at [4], [17]–[20] and [39].

23     Burns v Police [2016] NZHC 2116.

imposed. The reasons for that were explored in detail in Judge Wharepouri’s decision as outlined in the preceding paragraphs.

[41]   In any case, while small yet vocal segments of the community may take a different view, there can be little reasonable doubt that the steps taken by the government in 2020 as a response to the COVID-19 pandemic were as far reaching as they proved necessary. The ‘lockdowns’ were unprecedented and seismic in their effects, some more so than others. Extraordinary times then required extraordinary measures. That included, amongst others, the wage subsidy scheme. Billions of taxpayer dollars were provided to keep businesses functioning, albeit in extremely limited and often stressful circumstances. As mentioned, that scheme could only function in the time available on a high trust model. Unfortunately, and inevitably, it would seem, there will always be those individuals who act contrary to the purposes of such schemes.

[42]   Mr Downey’s offending involved repeated dishonesty of a system designed to help those most in need during that unprecedented time. While this specific offending cannot continue to occur as the system no longer exists, abuse of a system of this kind still requires specific deterrence for the future. Moreover, it is not improbable that there will be further inquiries and investigations of the kind that led to Mr Downey’s exposure. Overall, in my assessment, the Judge did not err in focusing on the need for deterrence or denunciation in this way.

[43]   That said, Ms Farquhar ably argued her case as to the appropriate weight to be given to the need for specific deterrence of Mr Downey and the ability for prison to serve a rehabilitative purpose for him. Her points were well made that Mr Downey’s record contains only minor offences, none of which are related to the index offending, and accordingly the need for specific deterrence is low. As is her point that the Judge may have misapprehended the availability or quality of the rehabilitation Mr Downey would receive in prison.24

24 Although, Judge Wharepouri also referred to the availability of programmes as part of post-release conditions. In the context of a short-term sentence of imprisonment these programmes would play a significant role in overall rehabilitation.

[44]   However, these points do not displace my conclusion that Judge Wharepouri correctly prioritised the need for denunciation and general deterrence and appropriately determined a sentence of imprisonment was required to meet those purposes. I discern no error in the Judge’s approach. Consequently, I see no reason  to disturb his decision. The appeal must be dismissed.

Starting point

[45]   Although not strictly an appeal point, I make some comments on the starting point imposed by Judge Wharepouri for Mr Downey’s offending. As recorded in Hogan v Ministry of Social Development, there is no special sentencing approach for fraud enacted against the State rather than individuals or a group of victims.25 Even so, it is evident that offending against the State is not victimless.26 The seriousness of the offending will invariably be determined by the particular facts of the case.27 However, where the offending involves abuse of a special scheme, particularly one established to assist people in a time of emergency or crisis, this will be aggravating.28

[46]   Judge Wharepouri’s consideration of the comparator cases of Wu v Accident Compensation Corporation, Moses v Police and Harnett v Ministry of Social Development was sound.29 I also note that the starting point is consistent with the authorities cited in Wu: Mitha v Police, Fitzmaurice v Police, Mackley v Police and Proctor v Police.30

[47]   In summary, I take no issue with the starting point arrived at by the Judge in his sentencing. On the contrary, I consider that the starting point he determined is entirely appropriate for this kind of offending, taking account of the relevant background circumstances including the purpose of the scheme during an unprecedented national pandemic.

25     Hogan v Ministry of Social Development (2005) 23 CRNZ 500 (HC).

26     R v Patterson, above n 14.

27     See R v Varjan, above n 14.

28     Burns v Police, above n 22.

29 Wu v Accident Compensation Corporation, Moses v Police and Harnett v Ministry of Social Development, all above n 4.

30 Wu, above n 4, at [12]–[15], citing Mitha v Police HC Auckland CRI-2006-404-266, 8 September 2006; Fitzmaurice v Police [2013] NZHC 494; Mackley v Police [2014] NZHC 1561 and Proctor v Police [2016] NZHC 2656.

Decision

[48]The appeal is dismissed.

Harvey J