Hickman v The Queen
[2004] NZCA 105
•29 June 2004
IN THE COURT OF APPEAL OF NEW ZEALAND
CA396/03
THE QUEEN
v
DAVID ALAN HICKMAN
Hearing:14 June 2004
Coram:McGrath J
Goddard J
Chisholm JAppearances: R J Earwaker for Appellant
K P McDonald QC and R L Mullineux for Crown
Judgment:29 June 2004
JUDGMENT OF THE COURT DELIVERED BY CHISHOLM J
[1] The appellant was found guilty by a District Court jury on one count of conspiracy to defraud and sentenced to 300 hours community work. This was a second trial, the first jury having been unable to reach a verdict. The appellant appeals against his conviction pursuant to s385(1) of the Crimes Act 1961 on the grounds that the jury’s verdict was unreasonable or cannot be supported having regard to the evidence.
Background
[2] It is alleged by the Crown that between 25 October 1999 and 1 April 2000 the appellant conspired with Neil Dorset to defraud Hans Holtz, Jeremy Paterson and IP Logic Limited. An agreed chronology of events was before the jury.
[3] Computer software for the conversion of outdated computer hardware into server dependent hardware was developed by the appellant. During the final stages he was assisted by Mr Dorset. Marketing of the software required an injection of funds and on 22 May 1999 the following advertisement was placed in the New Zealand Herald:
Innovative PC Thin Client Technology developed over the past 3 years in New Zealand now completed and ready for International release. Major New Zealand IT resellers are already appointed, with sales imminent.
Equity Investment parcels are offered in this exciting venture, to assist the company to market the products internationally. The product suite has exceptional growth prospects.
This advertisement attracted the interest of Mr Holtz and Mr Paterson who decided to invest in the project.
[4] A heads of agreement was completed for each investor. Under a heads of agreement signed on 8 June 1999 Mr Paterson agreed to purchase a 5% stake in the venture for $500,000. Mr Paterson’s investment was payable by instalments with the first instalment of $150,000 being payable on completion of a formal agreement. Mr Holtz’s heads of agreement was signed the following day. He also agreed to purchase a 5% stake for $500,000 payable in two instalments. The first instalment of $100,000 was payable after IP Logic Limited was incorporated and the second instalment of $400,000 was to be paid on or before 31 August 1999. Both investors completed due diligence.
[5] IP Logic Limited was incorporated for the purpose of acquiring the intellectual property in the software and to licence its use. Its authorised share capital comprised 10,000 ordinary shares. The company entered into an agreement for the purchase of the software from the appellant and Mr Dorset for $9 million which represented its market value as assessed by a firm of chartered accountants. The appellant and Mr Dorset applied part of the software purchase price towards their acquisition of shares in the company and Mr Holtz and Mr Paterson made their respective payments of $100,000 and $150,000 to the company. Initially 9,250 shares were issued:
·7,200 shares to the appellant
·1,800 shares to Mr Dorset
·100 shares to Mr Holtz
·150 shares to Mr Paterson.
The remaining 750 shares were to be issued to Mr Holtz (a further 400 shares) and Mr Paterson (a further 350 shares) so that once they had each paid $500,000 they would be entitled to 500 shares each. Mr Holtz and Mr Paterson became directors of the company.
[6] After Mr Holtz raised issues concerning the performance of IP Logic Limited the four shareholders renegotiated the timing of the remaining payments by the two investors. In terms of the new arrangement, which is recorded in the Board minutes of 31 August 1999, Mr Holtz and Mr Paterson were each to make a further payment on 1 September that would bring their individual investments up to $175,000 and their shareholding to 175 shares each. Subject to satisfactory performance by the company, each investor was to make a further payment of $150,000 on 1 October 1999. Further investment was to be taken up by the investors upon satisfactory performance.
[7] The payments due on 1 September were duly made and the individual shareholding of Mr Holtz and Mr Paterson increased to 175 shares. But the investors did not make the payments scheduled for 1 October. Instead, with Mr Paterson’s concurrence, Mr Holtz wrote a letter dated 9 October 1999 expressing concern about the under achievement of the company and suggesting that the share purchase price and/or percentage of shares to be received by the investors should be adjusted to reflect this under performance. A few days later Mr Holtz wrote a further letter suggesting that the shareholding of the investors should be lifted to a minimum of 10% and that any further investment by himself and Mr Paterson should be by way of appropriately secured loans.
[8] On 22 October 1999 a draft agreement was presented for consideration by Mr Holtz and Mr Paterson. Following discussion between the four shareholders that document was modified at a further meeting on 26 October and then faxed to Mr Holtz’s solicitor, Mr Deeb, so that it could be translated into a legal format. The resulting document, which was ultimately signed by all four shareholders, reads:
BETWEENDAVID ALAN HICKMAN and NEIL KENNETH DORSET (“Vendors”)
AND HANS RICHARD HOLTZ and JEREMY JOHN PATERSON (“Investors”)
AND IP LOGIC LIMITED (the “Company”)
WHEREAS the Investors have acquired certain shares in the Company and are desirous of acquiring further shares by investing further funds in the capital of the Company;
AND WHEREAS the Parties have reached agreement in regards to the shares to be issued to the Investors on the one hand and the funds to be paid to the Company by the Investors on the other.
NOW THEREFORE IT IS AGREED as follows:
1.The authorised share capital of the Company shall be 10,000.00 shares.
2.The Investors agree to each pay to the Company the sum of $162,500.00 in consideration for which the share capital of the Company shall be as follows:-
· David Alan Hickman 6,560 shares
· Neil Kenneth Dorset 1,640 shares
· Hans Richard Holtz 740 shares
· Jeremy John Paterson 740 shares;
3.The Investors further agree to each pay to the Company on or before 15th January 2000 (subject to the condition referred to in Clause 4 below) a further sum of $162,500.00 in consideration for which additional shares will be issued as follows:
· Hans Richard Holtz 160 shares
· Jeremy John Paterson 160 shares
PROVIDED HOWEVER should the Investors fail to make payment of the second instalment referred to in this clause, then the shares to be issued herein shall be forfeited and shall revert to un-issued shares held by the company;
4.Payment of the instalment referred to in Clause 3 above shall be conditional upon the Company achieving sales to the value of NZ$100,000 by 31st December 1999 to be notified to the Investors in writing by 7th January 2000.
5.Should it become apparent to the Executive Management of the Company that refinancing will be needed during the term of this Agreement, no party shall hinder the process of raising such finance. For the purpose of this Agreement the Executive Management shall be deemed to be the board of directors of the Company.
6.This agreement shall only be amended if reduced to writing and signed by the parties.
When the shareholding in clause 2 of this agreement is compared with the shareholding existing before the agreement was entered into, it is clear that implementation of clause 2 required the appellant to transfer 640 shares to Mr Holtz and Mr Paterson and Mr Dorset to transfer 160 shares to those persons.
[9] It is the Crown’s case that on the evidence these 800 shares were to be transferred for nominal consideration and that to the knowledge of the appellant the payments made by Mr Holtz and Mr Paterson pursuant to clause 2 of the agreement belonged to the company. On the other hand, the appellant claims that such payments belonged to himself and Mr Dorset because they represented the consideration for the shares transferred by himself and Mr Dorset to Mr Holtz and Mr Paterson.
[10] Although Mr Dorset and the two investors signed the agreement before Mr Dorset left for overseas after the meeting on 26 October, the appellant was unhappy about the agreement and did not sign it until 2 November 1999. After the agreement was signed by the appellant each investor paid $162,500 in accordance with clause 2 (Mr Holtz had in fact made an initial payment of $10,000 at the conclusion of the meeting on 26 October to enable accounts to be paid, but nothing turns on that). Initially the solicitor for the company, Mr Johnson, receipted the payments into his trust account as “Capital injection” but after discussing the matter with Mr Dorset following his return from overseas he amended the receipts to “Funds for share purchases”.
[11] Ill feeling between Mr Holtz and Mr Paterson and the other two shareholders intensified. When the appellant raised the possibility of suing Mr Holtz, Mr Johnson decided that the appellant and Mr Dorset needed independent legal advice and referred them to Mr Dukeson on 22 November 1999. The possibility of removing Mr Holtz and Mr Paterson as directors was discussed with Mr Dukeson and on 1 December 1999 the appellant removed them as directors. He also instructed Mr Johnson not to provide them with any further information about IP Logic Limited.
[12] The next significant event was that Mr Dorset instructed Mr Johnson to prepare a debenture in his favour securing his share of the funds paid under the agreement. At that stage the appellant was undecided about whether to take a debenture but on 9 December he joined Mr Dorset in instructing Mr Johnson to draw debentures in favour of each of them. The following day cheques were exchanged between IP Logic Limited and the two debenture holders.
[13] On 15 December 1999 share transfers for the transfer of the 800 shares from the appellant and Mr Dorset to Mr Holtz and Mr Paterson in consideration of $364,864 were signed by the appellant and Mr Dorset. Although Mr Holtz signed the share transfers a few days later Mr Paterson initially refused to sign them but ultimately signed a share transfer in favour of his family trust. On 21 December 1999 there was a replacement exchange of cheques at a lower figure than the original exchange.
[14] After a falling out between the appellant and Mr Dorset, the appellant and his wife removed Mr Dorset and another person as directors of IP Logic Limited on 27 March 2000. All employees of the company were dismissed and it ceased trading. The following day Mr Dorset responded by appointing a receiver under his debenture. The appellant countered this move by raising funds through a Mr Teernstra (who took a debenture over the company and a personal guarantee from the appellant) and paying out Mr Dorset whose debenture was discharged. When Mr Teernstra failed to recover his advance from the company he obtained judgment against the appellant on the strength of the appellant’s personal guarantee.
The trial
[15] Before trial the appellant made application for a s347 discharge on the basis that a possible interpretation of the 26 October agreement was that the appellant was selling shares to the complainants and that the appellant was entitled to extract his share of the sale proceeds from IP Logic Limited. It was submitted that under those circumstances no jury properly directed could convict the appellant. The Judge hearing the application (who was not the trial Judge) decided that the wording of the agreement was clear and unequivocal and there was no basis upon which it could be construed as a sale of shares to the complainants. However, he left open the possibility of a further application during trial.
[16] Eight overt acts relied on by the Crown to establish the charge of conspiracy to defraud were included in the jury booklet:
1.On 1 December 1999, Hickman removed the complainants as directors of IP Logic Limited and Hickman and Dorset removed the complainants as directors of IP Logic Limited and MultiTALK Global Limited (Vol 1 pages 82 and 83).
2.On 1 December 1999, Hickman instructed Alan Johnson, IP Logic Limited’s solicitor, by email “to cease providing any information what so to [the complainants] what so ever relevant to the affairs of the company’s” (Vol 2 p28).
3.On 8 and 9 December 1999, Hickman and Dorset instructed Alan Johnson to draft debentures in their favour.
4.On 16 December 1999 Hickman and Dorset signed share transfer forms with a consideration amount filled in (Vol 1 pages 35 and 36, 87 and 88).
5.On 21 December 1999 Hickman and Dorset withdrew funds from IP Logic Limited (Vol 4 pages 91 and 92).
6.On 20 December 1999, Hickman and Dorset, as directors of IP Logic Limited, gave debentures in their own favour over the assets of IP Logic Limited to the value of the funds withdrawn from IP Logic Limited (Vol 4 pages 20 to 46).
7.Hickman and Dorset instructed IP Logic Limited’s solicitor to register against IP Logic Limited at the Companies Office the debentures in Hickman and Dorset’s favour (Vol 4 pages 19 and 33).
8.On 30 March 2000, Dorset demanded and received payment from IP Logic Limited for his debenture (Vol 4 page 47).
Although there is reference to MultiTALK Global Limited it is common ground that for present purposes that company is of no significance
[17] Excluding the Judge’s summing-up and retirement of the jury the trial occupied six hearing days. Viva voce evidence was given by eight prosecution witnesses and the briefs of two further witnesses were read to the jury by consent. No evidence was called for the defence. We now briefly outline the viva voce evidence.
[18] Mr Holtz and Mr Paterson gave evidence about events after they responded to the newspaper advertisement until complaints were laid with the Serious Fraud Office. They were extensively cross-examined by Mr Earwaker, particularly in relation to events surrounding the agreement of 26 October and the interpretation of that agreement. Three solicitors gave evidence: the company solicitor, Mr Johnson; Mr Deeb who redrafted the 26 October agreement at the request of Mr Holtz; and Mr Dukeson who provided the appellant and Mr Dorset with independent legal advice following referral from Mr Johnson. Each solicitor was carefully cross-examined by Mr Earwaker. Evidence was also given by the Serious Fraud Office investigator and by a forensic accountant. The final witness was Mr Teernstra who, as already mentioned, advanced money to IP Logic Limited at the request of the appellant in March 2000.
[19] Mr Earwaker does not take any issue with the Judge’s summing-up. But he asked us to read Mr Dukeson’s evidence in the context of the following questions from the jury:
Question 1:From transcript – Dukeson’s evidence in regard to advice requested from Hickman re entitlement to money.
Question 2: When he was asked to read from Page 6 of his report.
In response to these questions the Judge read to the jury lengthy extracts from the transcript.
Discussion
[20] While Mr Earwaker accepted that the jury was appropriately directed, he argued that when all the evidence is considered it becomes clear that the verdict is unreasonable or cannot be supported having regard to the evidence. At the forefront of his argument is a submission that on the evidence there is an explanation for the overt acts other than the explanation that they were part of a conspiracy to defraud. He submitted that contrary to the Crown’s assertion that the appellant and Mr Dorset were dishonest, the circumstances leading up to the registering of the debentures reveals that there was real confusion, ambiguity and uncertainty surrounding the agreement of 26 October, in particular, which shares were being issued, which shares were being transferred and for what consideration.
[21] It is common ground that as stated in R v Ramage [1985] 1 NZLR 392 (CA) at p393 and recently endorsed in R v Cootes, Tawhai and Mason (CA296/03, 302/03 & 277/03, 2 March 2004), a verdict will be unreasonable or unsupportable in terms of s385(1)(a) if:
… the Court is of the opinion that a jury acting reasonably must have entertained a reasonable doubt as to the guilt of the applicant. It is not enough that this Court might simply disagree with the verdict of the jury.
It is also common ground that it is for the appellant to demonstrate that there was no evidential basis on which the verdicts could be rationally supported: R v Butler (CA54/02, 26 February 2003).
[22] Although the charge spans the period from 25 October 1999 to 1 April 2000, the advertisement of 22 May provides a logical starting point for assessment of this appeal. In that advertisement the appellant and Mr Dorset stated that technical development of the software had been completed and that the product was ready for international release. On the evidence, particularly the evidence of Mr Holtz and Mr Paterson, it was open to the jury to conclude that the advertisement had overstated the position. Both investors gave evidence that in fact the software was not ready for international release and that this state of affairs prompted the renegotiation of their investment packages.
[23] The agreement of 26 October 1999 resulted. Undoubtedly this is a pivotal document. According to the Crown it underpins the allegation of conspiracy to defraud because on the Crown’s case the appellant knew that he was not entitled to receive any part of the payments made pursuant to clause 2 and dishonestly conspired with Mr Dorset to defeat the agreement. On the appellant’s analysis the Crown’s allegation cannot get off the ground. According to the appellant the payments under clause 2 of the agreement belonged to himself and Mr Dorset because such payments represented the consideration for the 800 shares sold by them to Mr Holtz and Mr Paterson.
[24] Mr Earwaker developed his argument that the agreement of 26 October was uncertain and confusing by reference to a number of matters including: it was inherent in the implementation of clause 2 that 800 shares had to be transferred by the appellant and Mr Dorset to Mr Holtz and Mr Paterson and this is why the agreement described the appellant and Mr Dorset as “vendors”; there is no reference to the consideration for the transfer of shares; this uncertainty prompted Mr Deeb to clarify the issue during the telephone conference on 26 October during which the appellant was absent; all the lawyers acknowledged that the agreement was confusing; and this theme of confusion and uncertainty as to the precise terms of the agreement was carried through to subsequent events leading up to the issuing of the debentures by IP Logic Limited.
[25] Naturally the issue of the consideration for the transfer of the 800 shares received close attention at trial and during Mr Holtz’s evidence in chief we find this exchange:
And the transfer of shares from Hickman and Dorset to you and Mr Paterson – was that the subject of discussion during the boardroom discussion with the four of you? ….. Well that was one of the major parts of that. The issue was that the compensation was to be at nil value in view of the malperformance of the company.
Compensation was to be at nil value for poor performance of the company – is that what you said? ….. That was the compensation part of things.
The nil value being nil value for what? ….. For us.
Nil value – what was nil value? ….. Well we were going to get an adjustment of the shares for no cost to us because we’d already paid the $175,000.
And was that discussed with the four of you in the boardroom or not? ….. Absolutely, that was the basis of the compensation agreement.
Was Mr Hickman involved in those discussions in the boardroom about that matter? ….. Of course, he was there.
Under cross-examination Mr Holtz did not retreat from this position and on re-examination he reiterated that Mr Hickman knew that the transfer of shares was for nil consideration.
[26] The same issue was also traversed in Mr Paterson’s evidence. Mr Paterson categorically rejected any suggestion that the appellant and Mr Dorset were to be paid for the shares that were to be transferred to himself and Mr Holtz and said that as far as he was concerned there was no compensation because the appellant and Mr Dorset had “lied and cheated”. He said that it was well understood during the meeting that the shares were to be transferred at nil value and that this was subsequently confirmed during the speaker phone conference with Mr Deeb. Like Mr Holtz he maintained his stance under cross-examination.
[27] Support for the evidence of Mr Holtz and Mr Paterson can be found in the agreement itself. The first recital makes it clear that the investors are desirous of acquiring further shares “by investing further funds in the capital of the company”. And the second recital confirms that the funds are “to be paid to the company” by the investors. This is reinforced by clauses 2 and 3 of the agreement which again expressly state that each payment is to be made to the company. It is not surprising that the appellant and Mr Dorset are described as “vendors” because this accurately reflects their status. Certainly that description did not undermine the evidence of the two complainants to the effect that the transfer of shares was to be at a nominal figure. Moreover, nothing in the earlier drafts of the agreement provides a foothold for the appellant’s argument. In our view all these documents make it clear that the payment was to the company, not to the appellant and Mr Dorset.
[28] We also note that there is clear evidence from several quarters that the appellant was unhappy with the agreement. Thus it was reasonably open to the jury to infer that he was unhappy with the agreement because he fully appreciated the implications of the agreement and in particular that he would not be personally receiving any payment.
[29] Given these matters the absence of the appellant when the telephone conference took place with Mr Deeb cannot avail the appellant. The jury was entitled to infer from the evidence that he was well aware before the telephone conference took place that the 800 shares were to be transferred for nominal consideration. The telephone conference simply confirmed that feature of the arrangement. It is also significant that Mr Deeb, being the only lawyer directly involved in the preparation of the agreement, gave evidence to the effect that his understanding from the telephone conference was that the shares were to be transferred for nominal consideration and that the money referred to in the agreement was being paid to the company by Mr Holtz and Mr Paterson as working capital for the company. Understandably Mr Earwaker attempted to neutralise Mr Deeb’s evidence by comparing it with a contradictory file note completed by Mr Deeb. We note, however, that this file note was not an exhibit and that on the evidence it appears to have been made at a much later and unknown time. In any event, the accuracy or otherwise of Mr Deeb’s evidence in chief was a matter for the jury.
[30] Mr Earwaker also attempted to make something of the fact that the other two lawyers, Mr Johnson and Mr Dukeson, found the agreement confusing. That needs to be kept in perspective. Neither solicitor was involved in the preparation of the agreement or, indeed, in events immediately surrounding the agreement. To a large extent they were relying on explanations provided by individual shareholders. Obviously they did not have the benefit of the overall perspective available to the jury. In any event it was for the jury to reach conclusions about the appellant’s knowledge concerning the agreement. For similar reasons we are unable to place any weight on the fact that Mr Johnson changed the narration on the trust account receipt after discussing the matter with Mr Dorset.
[31] In the end result we are satisfied that it was open to a jury acting reasonably to conclude that the appellant knew that the payments by Mr Holtz and Mr Paterson under clause 2 of the agreement belonged to the company and that he had no personal entitlement to such funds. That conclusion effectively destroys the appellant’s challenge to the jury’s verdict. Plainly it was open to the jury to infer that both the appellant and Mr Dorset were unhappy about the agreement of 26 October and that given the events relied on by the Crown (which are not seriously contested) they conspired to defeat that agreement and get rid of the two investors by fraudulent means.
Result
[32] The appeal is dismissed.
Solicitors:
Serious Fraud Office, Auckland
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