R v Douglas

[2012] NZHC 2271

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI 2011-004-012988 [2012] NZHC 2271

THE QUEEN

v

WAYNE LESLIE DOUGLAS NEAL MEDHURST NICHOLLS OWEN FRANCIS TALLENTIRE

Hearing:         31 August 2012

Counsel:         N Davidson QC, N Williams and M Thomas for the Crown

B Gray QC and R Sussock for the Prisoners Douglas and Nicholls
N Gedye, T Mullins and M Heard for the Prisoner Tallentire

Judgment:      31 August 2012

SENTENCING NOTES OF WYLIE J

Distribution:

N Davidson QC: [email protected]
N Williams: [email protected]
M Thomas: [email protected]
B D Gray QC: [email protected]

R Sussock: [email protected] G Tompkins: [email protected] N Gedye: [email protected]

T Mullins: [email protected]
M Heard: [email protected]

S Ellis: [email protected]

R V DOUGLAS & ORS HC AK CRI 2011-004-012988 [31 August 2012]

Introduction

[1]      Mr Douglas, Mr Nicholls and Mr Tallentire, you may remain seated until I

ask you to stand.

[2]      Following a four-week trial, you have each been found guilty by me, sitting as a Judge alone, of various charges of theft as a person in a special relationship.  I have entered convictions against you in relation to these charges.

[3]      Mr Douglas and Mr Nicholls have each been convicted of three charges of theft as a person in a special relationship, pursuant to s 220 of the Crimes Act 1961. The three transactions which resulted in their convictions were respectively known as the Numeria 1 transaction, the Clyde 1 transaction and the Clyde 2 transaction.

[4]      Mr Tallentire has been convicted of two charges of theft as a person in a special relationship, again pursuant to s 220 of the Crimes Act.  I found him guilty in relation to the Clyde 1 and Clyde 2 transactions.

[5]      The maximum penalty for each conviction is seven years’ imprisonment.

Factual Background

[6]      The charges in respect of which Messrs Douglas, Nicholls and Tallentire have been  found guilty arise out of  their management of the finance company, Capital + Merchant Finance Limited.

[7]      Capital + Merchant Finance Limited was incorporated on 18 January 2002. It operated as a finance company, predominantly providing loans for property development and construction projects.

[8]      Mr Douglas  was  a  director  of  the  company  from  18  January 2002  until

15 February  2007.     Mr Nicholls  was  a  director  from  18  January  2002  until

1 November 2005.   He was reappointed as a director on 31 March 2006, and he remained  a  director  thereafter.    Mr Tallentire  was  appointed  as  a  director  on

13 October 2006 and he remained a director thereafter.  He had previously been the

company’s Chief Executive.

[9]      Up until November 2006, Messrs Douglas and Nicholls owned Capital + Merchant Finance Limited through a chain of corporate entities and trusts.   The shares were owned by other companies which in turn were owned by an entity known  as  Investment  Capital  Trust  Limited.     Messrs  Douglas  and  Nicholls controlled that company.   It held the shares on behalf of a trust, the Investment Capital Trust.  The principal beneficiaries of that trust were further trusts associated with Messrs Douglas and Nicholls.

[10]     The lending undertaken by Capital + Merchant Finance Limited was funded primarily through the issue of securities to the public.  To comply with the Securities Act 1978, it issued a number of prospectuses and investment statements, and its fundraising was controlled by a debenture trust deed.

[11]     The debenture trust deed was dated 5 April 2002.  The trustee was Perpetual Trust Limited.   The deed was signed by Messrs Douglas and Nicholls.   Both they and  Mr Tallentire were aware of the deed and its terms.  It set out in considerable detail the company’s obligations with respect to investors’ funds and it contained various restrictions on how Capital + Merchant Finance Limited, as the issuer of the debt securities securing the funding, could deal with the monies it received from the public.  Relevantly, it contained specific obligations in relation to what were called “related party transactions”.  It provided that the company was not to enter into any related  party transaction  without  the  prior  consent  of  the  trustee,  except  in  the ordinary course of business, where the terms of the related party transaction were evidenced in writing, and where the consideration for the transaction was on the basis of an arms-length transaction as between two unrelated parties contracting in an open market.   Any related party transactions were required to be disclosed in regular reports to the trustee.  Other clauses in the debenture trust deed required the company to carry on its business in an efficient, prudent and businesslike manner, and, in broad terms, to comply with all laws, the non-compliance with which might have a material adverse effect on the company.

[12]     Capital + Merchant Finance Limited operated a lending committee which was responsible for considering loan applications.  All loans made by the company were approved by it.   The lending committee comprised Mr Douglas, Mr Nicholls and Mr Tallentire.   A  Mr Smith, who was  a lending manager employed by the company, was also a member of the committee.

The Numeria 1 Transaction

[13]     The Numeria 1 transaction comprised a loan advance made by Capital + Merchant Finance Limited to its immediate parent company, Capital + Merchant Group Limited, in the sum of $7,660,000.  Capital + Merchant Group Limited was controlled by Messrs Douglas and Nicholls.

[14]     The background to the Numeria 1 transaction is as follows.  A Mr Christian owned a company called Wiltshire Equities Limited.  It, in turn, owned a company called  Numeria  Holdings  Limited,  which  was  the  holding  company  of  another finance company, Numeria Finance Limited.  Numeria Finance Limited in turn had a subsidiary, Numeria Leasing Limited.   Numeria Holdings Limited also owned a beach property at Omaha.   It had purchased that property from Mr Christian for

$1,650,000.

[15]     In June 2003, Investment Capital Trust Limited purchased Numeria Holdings Limited from Wiltshire Equities Limited for $2,630,000.  It paid Wiltshire Equities Limited $980,729 for the shares in Numeria Holdings Limited and Mr Christian

$1,650,000, effectively to acquire the beach property.

[16]     A Mr Wright, who was the Chief Executive of Numeria Finance Limited, then purchased 34 percent of the shares in Numeria Finance Limited from Numeria Holdings Limited for $200,000.

[17]    On 30 November 2004, Investment Capital Trust Limited sold Numeria Holdings Limited to Capital + Merchant Group Limited for $10 million.  Capital + Merchant Group Limited made an initial payment of $6 million.  The remaining sum of $4 million was payable depending on the future performance of Numeria Finance

Limited.  In the event, Numeria Finance Limited did not perform as anticipated and the balance of the purchase price was not paid.

[18]     Capital  + Merchant  Group  Limited  also  purchased  $1,660,000  of capital notes  from  Investment  Capital  Trust  Limited.    The  notes  had  been  issued  by Numeria Finance Limited.

[19]     The  payments  totalling  $7,660,000  made  by  Capital  +  Merchant  Group Limited to  Investment Capital Trust  Limited  were funded entirely by Capital + Merchant Finance Limited.

[20]     Messrs Douglas and Nicholls, as directors of Capital + Merchant Finance Limited, had control over investors’ funds that had been received from the public on the terms set out in the debenture trust deed.

[21]     Capital + Merchant Group Limited submitted a finance application to Capital

+ Merchant Finance Limited on 15 November 2004 seeking to borrow the monies. The application was signed by Mr Douglas and Mr Nicholls, on behalf of Capital + Merchant Group Limited.  It was not accompanied by a valuation of the borrower company or of Numeria Finance Limited.   Rather, Capital + Merchant Group Limited’s  application  for  the  finance  relied  on  forecasts  for  Numeria  Finance Limited which had been prepared by Mr Tallentire.

[22]     Capital + Merchant Finance Limited’s lending committee also relied on those forecasts.  They predicted large growth and earnings before depreciation and tax in the years 2006 and 2007.

[23]     The application was approved on the same day as it was made.  The lending committee’s approval summary was signed by Mr Douglas and Mr Tallentire.  It was also signed by Mr Smith.  As an employee, Mr Smith essentially did what he was told.   The summary recorded that the loan was based on cashflow projections for Numeria  Finance  Limited,  and  that  Numeria  Finance  Limited  was  expected  to become very profitable over the following two-year period.

[24]     The loan offer was accepted.   The loan agreement was signed by Messrs

Douglas and Nicholls on behalf of the borrower and the lender.

[25]     On 30 November 2004, $6 million was advanced to Capital + Merchant Group Limited.  The money was then paid to Investment Capital Trust Limited.  It used part of the money to settle prior related party loans it had previously received from Capital + Merchant Finance Limited.   The sum of $1,660,000  payable in respect  of  the  capital  notes  was  paid  to  Investment  Capital  Trust  Limited  on

24 December 2004.

[26]     Some 10 days later, a security agreement was put in place.  The security for the loan was the shares in Numeria Holdings Limited and the capital notes issued by Numeria Finance Limited.   Messrs Douglas and Nicholls signed on behalf of all parties.

[27]     The sale of Numeria Holdings Limited to Capital + Merchant Group Limited enabled Investment Capital Trust Limited to record a capital gain of $5,019,443. This was the difference between the sum paid by it for Numeria Holdings Limited in June 2003, and the sale price paid to it by Capital + Merchant Group Limited in November 2004.   Investment Capital Trust Limited distributed the capital gain to trusts associated with Mr Douglas and Mr Nicholls.  In effect, Mr Nicholls received the beach property at Omaha, through a trust known as the Paua Capital Trust, without making any payment for it.

[28]     The loan from Capital + Merchant Finance Limited to Capital + Merchant Group Limited was a related party transaction under the trust deed.  It was disclosed, but Perpetual Trust’s  prior consent was not sought for the transaction.    Messrs Douglas and Nicholls, when they disclosed the transaction, were, in effect, representing that the exception detailed in the trust deed applied.

[29]     The loan did not come within the exception set out in the debenture trust deed.   It was not in Capital + Merchant Finance Limited’s ordinary course of business.   Nor  was it  conducted on the basis  of an  arm’s-length transaction as between two unrelated parties contracting in an open market.  In particular:

[a]      No independent valuation of the assets being secured and lent against was obtained.

[b]      There  was  no  independent  review  of  the  transaction.    Conflicted directors were not disqualified from the loan assessment and approval process.

[c]      Capital + Merchant Finance Limited financed 100 percent of the acquisition.

[d]      There was no proper inquiry as to how the loan was to be repaid.

[e]      The cashflow forecasts on which the loan was based were not independently verified.

[f]      No third party or other collateral securities were required.  Nor were personal guarantees.

[g]      The security offered was not discounted to allow for the risks of realisation.

[30]     Further,  the  transaction  was  not  prudent.    Nor  was  it  undertaken  in  a businesslike manner or in compliance with relevant provisions in the Companies Act

1993.

[31]     Messrs Douglas and Nicholls were responsible for ensuring that Capital + Merchant Finance Limited complied with the debenture trust deed.  They did not do so.   They intended to bring the Numeria 1 transaction about.   They breached the requirements in the debenture trust deed in order to achieve their own ends, and they subordinated the interests of Capital + Merchant Finance Limited and its depositors to their own interests.

The Clyde Transactions

[32]     In the latter part of 2006, Mr Tallentire wished to acquire the Capital + Merchant Group and a similar group in Australia known as the Cymbis Group, from Messrs Douglas and Nicholls.   They wanted $13 million for their interests in the various companies and trusts comprising the two groups.  Mr Tallentire  investigated how he might raise the funds to enable him to buy them out.  When the option of obtaining outside funding proved unsuccessful, Messrs Douglas, Nicholls and Tallentire  focussed  their  attention  on  how  they  could  use  money  sourced  from Capital + Merchant Finance Limited.   They asked the company’s Chief Financial Officer, Mr Smyth, what entities within the group could be used to borrow against. They were told that the only companies which had not been borrowed against were Cymbis  Finance  Australia  Limited  and  Capital  +  Merchant  Business  Finance Limited.  Both entities were controlled by Messrs Douglas and Nicholls at the time.

[33]     In October 2006, a heads of agreement was entered into between Messrs Douglas,   Nicholls   and   Tallentire,   Investment   Capital   Trust   Limited   and Cymbis Trustees Limited.   In broad terms, the heads of agreement provided that Messrs Douglas and Nicholls would assign their rights in the Capital + Merchant Group  and  in  the  Cymbis  Group  to  Mr Tallentire  in  return  for  the  sum  of

$13 million.

[34]     The Clyde 1 and 2 transactions were undertaken to facilitate the transfer of the beneficial  ownership  and  control  of the Capital  + Merchant  Group  and  the Cymbis Group from Mr Douglas and Mr Nicholls to Mr Tallentire.

The Clyde 1 Transaction

[35]     The Clyde 1 transaction involved an entity known as Clyde Investments

Limited borrowing $7.7 million from Capital + Merchant Finance Limited.

[36]     Clyde Investments  Limited  was  a  company  owned  and  controlled  by

Mr Tallentire.    It  submitted  an  application  seeking  loan  finance  in  the  sum  of

$7.7 million from Capital + Merchant Finance Limited on 1 November 2006.  The

application was signed by Mr Tallentire.  According to the application, the purpose of the funding was to provide finance to Cymbis Trustees Limited as trustee of the Cymbis Trust.  Capital + Merchant Finance Limited approved the application on the same  day.    It  approved  a  loan,  not  of  $7.7  million  as  sought,  but  rather,  of

$8.7 million to allow for the capitalisation of interest and fees.  The loan offer was sent out and it was accepted, also on the same day.   A loan agreement was then prepared, and two days later, the loan advance was made.   There was then a complicated series of transactions, involving a large number of entities.  Some of the monies came back to Capital + Merchant Finance Limited to extinguish other loans it had made to other entities.

[37]     The investors’ funds lent by Capital + Merchant Finance Limited to Clyde Investments Limited were ultimately used to fund a trust distribution of $6,452,109 to a company called Investment Capital Holdings Limited, which was controlled by Messrs Douglas and Nicholls.

[38]     Again, the loan was disclosed as a related party transaction.  However, the loan was not in the ordinary course of business of Capital + Merchant Finance Limited.

[39]     It was not in the ordinary course of business for Capital + Merchant Finance

Limited as a finance company to fund a change in its own shareholders.  Further:

[a]      No  appropriate  inquiry  was  made  into  the  reasons  for  the  loan advance.

[b]      There was no inquiry as to when positive cashflow would be available to pay interest on the loan, or when the loan might be repaid.

[c]      The loan application contained erroneous information as to the shareholding in the Cymbis Group of companies.   The lending committee did not check the information provided to it, and it failed to appreciate the errors which had been made.  As a result, the loan to valuation ratio was very high.

[d]      No  independent  valuation  was  sought.    The  loan  application  was based on a so-called “valuation” prepared by a Mr Vallabh.   His valuation was in turn based on future earnings projections.   Those projections were provided by Mr Smyth, who in turn was accountable to Mr Tallentire.  There was no independent analysis or verification of the projections provided.  Moreover, Mr Vallabh was not a valuer. Rather, he was a research analyst.  He was not told why his opinion as to the value of the company was being sought.  Further, the lending committee did not have a specific valuation in “its hand” when it approved the loan.

[e]      No general security agreement was sought from Clyde Investments Limited.  Rather, the lending committee required a specific security over   Clyde Investments   Limited’s   interests   in   the   shares   of Cymbis New Zealand  Limited  and  Cymbis  New Zealand  (No  2) Limited, and over a loan agreement between the Clyde Trust and the Cymbis Trust.

[f]      There was no inquiry into the creditworthiness of the various entities involved.

[g]      Collateral securities were not sought.  No personal guarantee or other collateral security was required from Mr Tallentire as the principal behind Clyde Investments Limited.

[h]      The  lending  committee  did  not  consider  whether,  for  security purposes, the value of the shares in the various companies should have been discounted.

[i]       The lending committee made no assessment of the risks associated with the loan.

The lending committee did not consider the interests of Capital + Merchant Finance Limited, or its investors.  No attempt was made to manage the conflicts.  The lending committee was simply used to rubber stamp the transaction.

[40]     Further, the transaction was not conducted on the basis of an arm’s-length transaction and a number of other provisions contained in the debenture trust deed were breached.

[41]     The  debenture  trust  deed  was  breached  intentionally.    Messrs  Douglas, Nicholls  and  Tallentire  were  all  motivated  from  the  outset  by  self-interest. Mr Tallentire  wished  to  take  over  the  Capital  +  Merchant  Group  and   the Cymbis Group.     Mr Douglas  and  Mr Nicholls  wanted  to  be  paid  out.     They intentionally used investors’ funds deposited with Capital + Merchant Finance Limited to achieve that end, notwithstanding the requirements imposed in respect of funds  deposited  with  the  company  by  the  debenture  trust  deed.    They  clearly intended  to  bring  the  transaction  about,  and  they  breached  the  requirements contained in the debenture trust deed in order to achieve their own ends.

The Clyde 2 Transaction

[42]     The  Clyde  2  transaction  took  place  at  the  same  time  as  the  Clyde  1 transaction.

[43]     As a first step, Clyde Investments Limited sought a loan of $4.4 million from Capital + Merchant Finance Limited.   It submitted an application for finance to Capital + Merchant Finance Limited on 1 November 2006.   The application was signed by Mr Tallentire on behalf of Clyde Investments Limited.  The purpose of the application was said to be to finance the purchase of shares in Capital + Merchant Business Finance Limited from Capital + Merchant Group Limited.  The application was approved on the same day as it was made.  The loan was approved in the sum of

$5 million, again to allow for the capitalisation of interest and fees.   The letter of offer  was  also  sent  on  the  same  day,  and  it  was  immediately  accepted  by Mr Tallentire on behalf of Clyde Investments Limited.  Also on the same day, a loan

agreement was entered into between Capital + Merchant Finance Limited and Clyde

Investments Limited.

[44]    The following day, Capital + Merchant Group Limited entered into an agreement with Clyde Investments Limited, whereby it agreed to sell its shares in Capital + Merchant Business Finance Limited to Clyde Investments Limited for

$4.4 million.  The settlement date was the same day as the agreement was entered into — 2 November 2006.   The agreement was signed by Messrs Douglas and Nicholls on behalf of Capital + Merchant Group Limited, by Mr Tallentire on behalf of    Clyde Investments    Limited,    and    by    Mr Nicholls    and    the    company’s Chief Financial  Officer,  Mr  Smyth,  on  behalf  of  Capital  +  Merchant  Business Finance Limited.

[45]     The agreement was settled the following day, 3 November 2006.  The funds were distributed to the company’s solicitors.   Mr Nicholls and Mr Tallentire gave instructions in relation to the distribution of the money.   The loan advance was transferred to Clyde Investments Limited.   It then paid Capital + Merchant Group Limited $4.4 million and the shares in Capital + Merchant Business Finance Limited were  transferred  by  Capital  +  Merchant  Group  Limited  to  Clyde  Investments Limited as trustee of the Clyde Trust.  Capital + Merchant Group Limited then used the $4.4 million to purchase capital notes from Investment Capital Trust Limited. Investment Capital Trust Limited then distributed the $4.4 million to Investment Capital Holdings  Limited as trustee of  another trust, the Bluewater Trust.   The resolution recording the transfer of the funds was signed by Messrs Douglas and Nicholls  on  behalf  of  Investment  Capital  Trust  Limited.     Investment  Capital Holdings Limited was also controlled by Messrs Douglas and Nicholls.   The Bluewater Trust had been established by Messrs Douglas and Nicholls.   The beneficiaries  of  the  trust  were  other  trusts  associated  with  Messrs Douglas  and Nicholls.

[46]     The transaction was disclosed, but again, it was not in the ordinary course of business  of  Capital  +  Merchant  Finance  Limited.    It  was  part  of  the  wider transaction, the purpose of which was to facilitate a change in the beneficial ownership and control of the Capital + Merchant and Cymbis Groups from Messrs

Douglas  and  Nicholls  to Mr Tallentire.    Further, the transaction  was  not  in  the ordinary course of business of Capital + Merchant Finance Limited as a prudent lender:

[a]      The  lending  committee  made  no  proper  inquiry  into  the  loan application.   For example, it did not query when and if positive cashflow might become available to the borrowing entities.

[b]       It did not pause to consider the security proposed.

[c]      It did not seek appropriate securities, such as personal guarantees from Mr Tallentire.

[d]      It did  not seek any information about the creditworthiness of the borrowing entities.

[e]      The application was based on a “valuation” of Capital + Merchant Business Finance Limited.  That valuation asserted that the company was valued at $5,120,000, and the application recorded the valuation had been reviewed by Mr Vallabh.  The lending committee made no inquiry into the valuation at all.   There was, in fact, no valuation properly so called.  Rather, the valuation was a document prepared by Capital  + Merchant  Finance  Limited’s  Chief Financial  Officer  — Mr Smyth.   He was not a valuer.  Further, the loan application was positively misleading.  Mr Smyth had initially assessed the value of the  company  at  $5.1  million.     When  that  figure  was  put  to Mr Vallabh, he suggested that it was on the high side.  Mr Vallabh’s cautionary advice was ignored.  Instead, Mr Smyth’s “valuation” was put in the loan application.  The loan application was also misleading when it suggested that a Mr McKee-Wright had given specific advice as to value, which was not, in fact, the case.  The so-called valuation was woefully deficient.   Any conscientious lending committee, properly considering the interest of its investors, would have required a full and independent valuation.

[f]       The loan to valuation ratio was misstated.

[g]      The lending committee gave no consideration to Mr McKee-Wright’s interests in Capital + Merchant Business Finance Limited.   He was entitled to a 20 percent share in the company.   Clyde Investments Limited  was  only  entitled  to  an  80 percent  share  of  any benefits derived from the ownership of Capital + Merchant Business Finance Limited.  The “valuation” used by the lending committee should have been reduced to 80 percent of the value of Capital + Merchant Business Finance Limited, to recognise Mr McKee-Wright’s interests. No inquiry was made into any of these issues.

[h]       No general  security was  sought  from  Clyde  Investments  Limited.

Collateral securities were not sought.  Nor were personal guarantees or other collateral securities sought from Mr Tallentire.

[i]        The lending committee did not consider whether the value of Capital

+ Merchant Business Finance Limited should have been discounted, despite the fact that it was a small, unlisted and very recently incorporated factoring company.

[j]        No attempt was made to manage the directors’ obvious conflicts of

interest.  No independent advice was sought.

The lending committee made no assessment of the risks associated with the loan.  It did not pause to consider the interests of Capital + Merchant Finance Limited or its investors.  The lending committee simply “rubber stamped” the transaction.  It was progressed with considerable haste.  Mr Smith was told to approve and process the loan.   Mr Smyth was one of the signatories in the lending committee’s summary approving the loan.  He was not even a member of the lending committee.

[47]     The  transaction  was  not  undertaken  on  the  basis  of  an  arm’s-length transaction.   Nor was it prudent.   It was not undertaken in a businesslike manner. Again, Messrs Douglas, Nicholls and Tallentire intentionally breached the relevant

requirements in the debenture trust deed.   They were motivated by self-interest. Messrs Douglas and Nicholls wanted to be paid out.  Mr Tallentire wished to take control of Capital + Merchant Group and the Cymbis Group.  They jointly set out to use investors’ funds for that purpose, notwithstanding the requirements they knew were imposed on them in relation to investors’ funds.

[48]     Now, that narration of relevant facts, long though it has been, is but a potted summary.  Further detail is contained in my reasons for verdicts delivered on 19 July

2012.

Pre-Sentence Reports

[49]     I have received three pre-sentence reports, one in relation to each offender.

Wayne Leslie Douglas

[50]     Mr Douglas  is  59  years  of age.    He has  a supportive family.    He is  in reasonable health, and the report writer noted that there are no barriers or difficulties identified which make it unlikely that he could comply with any sentence imposed.

[51]     He maintained to the report writer that there was never any intent to deceive, or to cause loss to investors.  Rather, he thought that all necessary steps were being taken to ensure that all matters were properly disclosed.  He did express remorse that his actions caused the investments to fail.  The report writer recorded that he advised him as follows:

I do not excuse myself … I got arrogant.

[52]     The report writer assessed Mr Douglas as being at a low risk of re-offending, and as having a high motivation not to do so.

[53]     Mr Douglas has not made any offer of reparation.   He advised the report writer that the home he shares with his wife is owned by a family trust, and that it is

mortgaged.  He also said that he owes a substantial debt on his credit card, and that he has no personal assets.

[54]     A sentence of imprisonment was recommended.

Letter from Mr Douglas

[55]     I have received a letter from Mr Douglas dated 21 August 2012.   I have received  similar  letters  from  Mr Nicholls  and  Mr Tallentire.    I propose  to  read sections from them.   Members of the public and former investors are entitled to know how the offenders now feel about their offending.

[56]     Mr Douglas advises me that my findings have hit him very hard:

… as they clearly and concisely show where I failed in my duties as a director and where I failed to consider the interests of the investors …

Mr Douglas goes on to say:

At the time that the offences occurred it is very clear that I was acting in a cavalier way towards my responsibilities and that has, with hindsight, shocked me deeply …

I know now that I was out of my depth and feel I should not have held the position of responsibility that I did as I did not possess the rigours of mind to carry out the duties properly.

The  Governing  bodies,  the  investing  public  and  not  least,  my  family, deserve better than I was to provide.  My value judgements were poor and my knowledge of the requirements of my role were inadequate for the task.

… I am deeply ashamed of myself because in my mind I was better than this, but I am not.  Finding this out has been very hard …

I unreservedly apologise to all those affected by the mistakes I have made.

Neal Medhurst Nicholls

[57]     Mr Nicholls is 56 years of age.  He is in good health, and again, there are no barriers or difficulties identified which make it unlikely he could comply with any sentence imposed.

[58]     Like Mr Douglas, he expressed remorse to the report writer that his actions had caused the investments to fail.  He stated as follows:

To  say  “I’m  sorry”  is  a  very  big  understatement;  it  has  affected  me personally because of all my friends and family who invested in my company.  I am having to live with those consequences.

He maintained that there was never any intent to deceive or cause loss to investors, and that he thought that all necessary steps were being taken to ensure all matters were properly disclosed.

[59]     The report writer considered that  Mr Nicholls is highly motivated not  to reoffend, and that there is a low risk of him doing so.

[60]     Again, Mr Nicholls offered no reparation.  He said that he is unable to do so, and that he has no assets of his own.   The report writer recorded the home that Mr Nicholls shares with his wife is owned by a family trust.  Mr Nicholls stated that the family trust was established by his wife’s father, and that she is the beneficiary of the trust.  He also said that he owed a substantial debt for his credit card use.  He acknowledged having an investment property along with two others, but said there is a no equity in the property.  No further details were provided.

[61]     Again, a sentence of imprisonment was recommended.

Letter from Mr Nicholls

[62]     As noted, I have received a letter from Mr Nicholls dated 23 August 2012. Mr Nicholls reflected on the buoyant financial climate at the time of the offending. He then said as follows:

In reflecting now, since being confined in custody, on what has transpired over the last six years, culminating in my lengthy trial and the subsequent verdict of Your Honour on 19 July 2012, it has become numbingly clear to me that in fact my conduct in respect of the subject transactions fell well short  of  the  standards  that  should  have  applied  …    I did  not  consider seriously any potential downside, nor did I consider the effect on the Group of a possible failure of the financial markets, the system, and with that, of the Companies in the Group …

This failure to acknowledge what clearly should have been a carefully considered factor in relation to those transactions was immature and irresponsible behaviour from a director of a company which had so many responsibilities  to  so  many  interested  parties.    I  believe  now,  with  the benefit of hindsight, that I was truly neither qualified enough, nor trained nor experienced enough to have held that position of responsibility.   For that, I express my utmost regret.  I should have taken the position far more responsibly, if indeed I should ever have assumed the responsibility at all …

For all this, remorse seems a somewhat clichéd adjective to describe the way  I  feel  now,  but  it  is  perhaps  the  clearest  and  most  appropriate description for the purposes of this letter to Your Honour.  At the age of 57, the verdict has hit me head on like a locomotive at full steam.  I feel nothing but shame and humiliation.  It has shattered by self esteem, made me feel extremely humble, and is sorely testing my relationships on both a personal and professional front.  This verdict has turned the tables on the way I think of myself.

I can do no more now than to beg for the forgiveness of the Court …

Owen Francis Tallentire

[63]     Mr Tallentire is 65 years old.  He reported that he is well supported by his family, and that he has a close relationship with his son and daughter-in-law.   He reported having no savings.  He claimed to owe a substantial sum secured by way of mortgage, and a very substantial sum indeed to an insurance company for legal costs.

[64]     The report writer considered that Mr Tallentire was ambivalent regarding taking  responsibility  for  his  offending.    Mr Tallentire  maintained  that  when  he signed the transactions, he thought they were in the ordinary course of business.  He stated  that  he  did  not  think  that  he  was  “doing  wrong”.    However,  he  did acknowledge that in hindsight, he could see that he “didn’t do right”.   The report writer suggested that he minimised his offending when he stated that he had made an “error of judgement”, and that he should have “known more as a director”.   He acknowledged the harm his offending has had on his victims, stating that he let down the investors.

[65]     Mr Tallentire has not offered anything by way of reparation.  He stated that he has no savings, and that he does not have any money to make any reparation payments.

[66]     The report writer identified his “entitled attitude” and “offending supportive associates” as underpinning his offending.

[67]     Mr Tallentire’s risk of re-offending was assessed as low, and his motivation to change was assessed as being at a moderate level.

[68]     Again, a sentence of imprisonment was recommended.

Letter from Mr Tallentire

[69]     I  have  received  a  letter  from  Mr Tallentirer  dated  17 August  2012.    He referred to the collapse of Capital + Merchant Finance Limited, and stated that since being remanded in custody, he has had the opportunity to reflect upon his trial and the verdicts reached.  He stated as follows:

I am sincerely sorry for the parties affected by my actions as a director of

Capital + Merchant Finance.

I sincerely regret my inability, as a director, to identify the related party loans (known  as  Clyde  1 & 2)  as  not  being in  the  ordinary course  of business.  I also regret that my views on valuations were misguided and not independently verified.

My self-interests also clouded my objective analysis of the prudence of lending to Clyde.  For this I also apologise to those parties affected.

I acknowledge that my actions caused a breach of the trust deed of Capital + Merchant Finance and I sincerely apologise to the trustee and all of the debenture holders who relied on the adherence by the directors of Capital + Merchant Finance to the company’s trust deed.

Please forgive me.

References

Mr Douglas

[70]     I  have  received  a  large  number  of  character  references  in  Mr Douglas’ support.  They variously describe him as being somebody who is wise, caring and non-judgemental.  He is said to be a loving, loyal, supportive and constructive friend

and family member.   He has an interest in restoring military vehicles and history, and his referees suggest that he has contributed significantly to the community.  He supports the Returned Services Association.   He continues to enjoy the love and support of his children, stepchildren, other family members, friends and colleagues.

Mr Nicholls

[71]     Again, I have received a number of references which support Mr Nicholls. Those references are from family, friends, colleagues and business associates.  They suggest that Mr Nicholls is a valuable, caring, thoughtful and well-regarded member of the community.  They suggest that he loves his family, and that they in turn hold him in considerable esteem.  Others clearly respect him.  He is involved in Rotary, and  in  particular,  in  the  Young  Driver  Training  Programme.     Support  for Mr Nicholls is ongoing, despite the convictions.

Mr Tallentire

[72]     I have also received a number of references which support Mr Tallentire. Many  are  from  long-term  friends,  or  business  associates.     They  speak  of Mr Tallentire as being a generous and caring friend.  He is said to be a good father to his  children,  and  his  former  work  colleagues  suggest  that  he  is  honest  and trustworthy.  Some referees suggest that Mr Tallentire has been a mentor to them in their business and personal lives, and a number attest to his good character and community contributions.

Victim Impact Statements

[73]     The Crown has made available a number of victim impact statements from various depositors who invested money with Capital + Merchant Finance Limited.

[74]     There are common themes.  Most of the investors were elderly.  Many had invested their retirement savings with Capital + Merchant Finance Limited.  Many were dependent on the interest they received from the company to supplement their

superannuation.  Most investors have lost their life savings.  The impact on them and their families has been far-reaching and dramatic.   Most will never recover financially, or emotionally.   The loss of their hard-earned retirement monies has placed huge pressure not only directly on the investors, but also on their families and on their relationships with others.   The investors believed that their funds were in safe hands, and that the monies they invested were being prudently invested, by professionals, with the appropriate expertise.  Many are disillusioned with financial institutions generally.   All have suffered considerable anguish as a result of the collapse of Capital + Merchant Finance Limited.

[75]     Statements  have  also  been  filed  by the  receivers  of  Capital  +  Merchant Finance Limited.  At the date of receivership, Capital + Merchant Finance Limited had  approximately  7,000  investors,  who  had  invested  $167  million  with  the company.   Capital + Merchant Finance Limited’s loan portfolio consisted of 55 individual loans totalling $182 million.  Six of the outstanding loans had direct or indirect links to Messrs Douglas, Nicholls and Tallentire.  Those loans were valued at some $37 million.  Only $200,000 has been recovered.  As at 29 August 2012, nothing had been paid back to secured debenture holders.   The secured debenture holders are at risk of losing all of their investments, totalling $167 million.   Any recovery is contingent on claims against parties involved in the administration of the affairs of Capital + Merchant Finance Limited.

[76]     The receivers have advised there was no recovery for Capital + Merchant Finance Limited from the Numeria 1 loan or either of the Clyde loans.  I am also told by Mr Davidson QC, appearing on behalf of the Crown, that insurance proceeds are not available in respect of the secured debenture deposits.

Submissions Received

The Crown

[77]     Mr Davidson, for the Crown, submitted that a starting point of between nine

and 10 years’ imprisonment is appropriate for both Mr Douglas and Mr Nicholls and

that a starting point of seven years’ imprisonment is appropriate for Mr Tallentire. He referred me to the purposes of sentencing identified in s 7 of the Sentencing Act

2002.     He  submitted  that  denunciation  and  deterrence  must  be  the  primary sentencing goals.  He also referred me to the principles of sentencing detailed in s 8 of the Sentencing Act.  He submitted that the offending is close to the most serious of its kind, and that I should impose a penalty near to or at the maximum available. He also submitted that there are various aggravating features under s 9.

[78]     Mr Davidson referred me to a number of authorities which he argued are apposite.  Further, he submitted that I should impose cumulative sentences, arguing that a final sentence within the maximum statutory penalty of seven years’ imprisonment  would  be inadequate  to  reflect  the  totality of  the  offending.    He acknowledged there are some mitigating circumstances, including the fact that the offenders have no relevant previous convictions.   He submitted that the offenders relied  upon  their  good  character  to  persuade  investors  to  invest  in  Capital  + Merchant  Finance  Limited  and  that,  in  reality,  they were  abusing  the  investing public’s trust by entering into imprudent and unauthorised transactions.

[79]     Mr  Davidson   submitted   that   a  minimum   period   of  imprisonment   is appropriate under s 86 of the Sentencing Act.  He submitted that a minimum period of three years’ imprisonment was appropriate for Mr Tallentire, and that a minimum period of four and a half years’ imprisonment should be imposed on Messrs Douglas and Nicholls.

Mr Douglas/Mr Nicholls

[80]     Mr Gray QC for Messrs Douglas and Nicholls sought to distinguish this case from other finance company cases.   He noted that the requirements breached by Messrs Douglas and Nicholls called for value judgements.   He observed that the transactions were disclosed to the trustee as related party transactions, and that legal advisors were involved in structuring and documenting them.  He acknowledged that those factors were discounted as being relevant to guilt, but he submitted that they now must be relevant to culpability, and therefore to the appropriate sentence.  He emphasised that Messrs Douglas and Nicholls do not seek to shift responsibility to

the trustee or to their lawyers, but that disclosure, and the involvement of legal advisors, must reduce the sentence that might otherwise be appropriate.

[81]     Mr Gray argued that the appropriate starting point for Messrs Douglas and Nicholls is around three years.  He submitted that there are no aggravating features, but that there are various mitigating factors such as age, remorse, previous good character and the like.   He argued that I should allow both Messrs Douglas and Nicholls a discount of around 25–30 percent and that the final sentence imposed on each should be somewhere between two and two and a half years’ imprisonment. Mr Gray submitted that the Crown’s suggested starting point is inconsistent with previous sentences imposed, and that it misunderstands the extent of the criminality involved.  It was argued that there is no basis for suggesting that the sentence should be cumulative rather than concurrent, and that the test for imposing a minimum period of imprisonment is not met.  It was argued that Messrs Douglas and Nicholls are appropriate candidates for home detention, and that a sentence of home detention could be combined with a sentence of community work.

Mr Tallentire

[82]     Mr Gedye, on Mr Tallentire’s behalf, suggested the appropriate starting point for Mr Tallentire’s sentence should be between three and three and a half years’ imprisonment.  He submitted that there are no aggravating circumstances personal to Mr Tallentire, but that there are a number of mitigating factors personal to him.  He argued that when these are taken into account, a reduction of at least 30 percent is appropriate, and that an end sentence in the vicinity of two and a half years’ imprisonment should be imposed.  He then went on to submit that home detention would meet all relevant sentencing considerations, and that coupled with community work, a sentence of home detention would reflect the gravity of the offending, and will be consistent with sentences in other cases.

[83]     Mr Gedye referred me to other finance company cases.   He acknowledged that the charges before me were different, but submitted that they nevertheless show that the starting point proposed by the Crown is inappropriate.  He submitted that the Clyde 1 and 2 transactions were part of the one transaction, undertaken pursuant to

the heads of agreement dated 6 October 2006.   He submitted that Mr Tallentire’s offending was  relatively low  on  the scale of seriousness,  and  that  the Crown’s characterisation  of  Mr Tallentire’s  offending  was  inappropriately  severe.     He submitted  that  the  duration  of  Mr Tallentire’s  offending  was  short,  especially compared with the offending in other finance company cases.   He suggested that Mr Tallentire did not receive any great financial benefit from the Clyde transaction, although  he  did  acknowledge  that  by  obtaining  the  Clyde  1  and  2  loans, Mr Tallentire obtained control, through interests associated with him, of Capital + Merchant Group and the Cymbis Group without using any of his personal resources.

[84]     Mr Gedye argued that the loans were disclosed, and submitted that this is relevant to the gravity of the offending.  He also submitted that Mr Tallentire was entitled to point to the fact that accounting and legal advice was given.

[85]     Mr Gedye took issue with a number of the aggravating features suggested by the Crown.  For example, he submitted that Mr Tallentire’s offending could not be related to the collapse of Capital + Merchant Finance Limited.   He argued that I should only take into account any losses caused directly by Mr Tallentire’s conduct.

[86]     Mr Gedye then dealt with the aggravating and mitigating factors personal to Mr Tallentire.   He noted Mr Tallentire’s previous good character.   He argued that there is genuine remorse.  He then submitted that an end sentence of between two years and two years four months’ imprisonment should be imposed, and that in the circumstances, home detention was appropriate.   Finally, he submitted that a minimum sentence of imprisonment would be disproportionate.

Analysis

[87]     I now turn to analyse all of this material.

Purposes and Principles of Sentencing

[88]     I have considered the purposes and principles of sentencing set out in ss 7 and 8 of the Sentencing Act 2002.

[89]     In particular, I have had regard to the need to hold each of the offenders accountable for his offending, the need to promote in each a sense of responsibility for, and acknowledgement of his offending, and the need to denounce the conduct in which each was involved.   I am also mindful of the need to deter others from committing the same or similar offences.  The case law makes it clear that this is a primary factor in offending of this kind.  I have taken into account the gravity of the offending, including the offenders’ respective degrees of culpability, and I have considered the seriousness of this type of offending, and the general desirability of consistency of appropriate sentencing levels with similar offenders committing similar offences.  I am mindful that I must impose the least restrictive outcome that is appropriate in the circumstances.

[90]     I also take into account various aggravating features to the offending as detailed in s 9 of the Sentencing Act.  First, there is the extent of the loss and harm caused by the offending.  Secondly, there is the fact that the offending involved the abuse of a position of trust.  Thirdly, there is the fact that a number of the victims of the offending were retired and elderly.   They were vulnerable.   I also take into account that the offending was premeditated.   Further, there is the fact that the offending, at least by Messrs Douglas and Nicholls, was not isolated.

The Circumstances of the Offending

[91]     I start with observations made by Cooke P in R v McKelvey.1     He there observed that it is obviously important in our society, and that it should be well understood, that the taking of money by persons in a position of trust is not to be treated lightly.  He noted that more serious cases must normally result in long terms of imprisonment.

[92]     There is a useful summary of factors to be taken into account in sentencing in relation to fraud-related offending in the Court of Appeal decision in R v Varjan.2

The Court there observed as follows:

[22]      Culpability is to be assessed by reference to the circumstances and such factors as the nature of the offending, its magnitude and sophistication; the type, circumstances and number of the victims; the motivation for the offending; the amounts involved; the losses; the period over which the offending occurred; the seriousness of breaches of trust involved; and the impact on victims.

In my view, those comments are apposite to the offending in this case.

[93]     Taking these matters into account, in my view, the culpability of each of the offenders is high.

[a]      Each of the offences involved significant planning and premeditation.

The  convoluted  legal  structures  put  in  place  to  undertake  the transactions attest to that.

[b]      Each of the offenders abused his position as a director of Capital + Merchant Finance Limited.  In the various prospectuses issued by the company, the offenders trumpeted the company’s professionalism and expertise.    They made  much of the debenture  trust  deed  and  the security it was supposed to offer.  Most of the investors were elderly. They placed their savings with the company.  They thought that their monies  were  in  good  hands.    They  trusted  the  directors  of  the company to deal with their monies prudently and in the ordinary course of business.   When the directors intentionally breached the debenture trust deed to advance their own interests, there was a direct breach of the deed of trust.   There was also a breach of the very significant trust that the investors had placed in them.

[c]      The offending was sophisticated.   It was not spur of the moment opportunism.

[d]      Very large amounts of money were involved.   Messrs Douglas and Nicholls  have  been  found  guilty  of  the  theft  of  $19,760,000. Mr Tallentire has been found guilty of the theft of $12,100,000 of investors’ funds.   They are entitled to be sentenced on those convictions.  I am, however, required to try to take into account the ultimate impact on the victims of the offending.  I accept that not all of the money advanced was lost to Capital + Merchant Finance Limited.  Various loans made to other entities by Capital + Merchant Finance  Limited  were  repaid.    The  result  was  to  extinguish  the liability of some borrowers and replace those borrowers with other borrowers.   What would have happened had this not occurred is speculative.  I accept the point made by Mr Gray and Mr Gedye that it cannot be said that Capital + Merchant Finance Limited collapsed as a result of these offences.  Rather, they were part of a general malaise within the company.  Regardless of the precise accounting, it is clear that  significant  sums  were  advanced  to  entities  associated  with Messrs Douglas   and   Nicholls   as   a   result   of   the   offending. Mr Tallentire  acquired  the  Capital  +  Merchant  Group  and  the Cymbis Group.  It is also clear that the position of Capital + Merchant Finance Limited, and therefore of those who invested in it, was impaired as a result.

[e]      Messrs Douglas and Nicholls offended on two separate occasions, some  two   years  apart.     Mr Tallentire’s  offending  occurred  in November 2006.   It is, however, of note that the Clyde transactions were only undertaken when other sources of outside finance were not available.

[f]      Messrs  Douglas,  Nicholls  and  Tallentire  all  had  an  active  and significant involvement in the various offences in respect of which they have been convicted.   All were involved at various levels, and invariably at more than one level.   There was no awareness of the conflicts which should have been obvious.

[g]      Each of the offenders was driven by self-interest and greed.   The offending,   particularly   the   offending   relating   to   the   Clyde transactions, was cynical.   It was devoid of any semblance of commercial morality.

[h]      Messrs Douglas, Nicholls and Tallentire knew of the requirements in the debenture trust deed.   Each of them intentionally breached the requirements  in  the  debenture  trust  deed  to  advance  their  own interests.  Mr Gray and Mr Gedye argued that the offending involved erroneous value judgments.   I have some difficulty with that submission.  I accept that judgments were required, but the answers should not have been difficult in the circumstances that applied. Devoid of self-interest, the steps required to be taken should have been obvious.   What was required was nothing more or less than prudence and good business practice.

[i]       There  was  a  significant  and  serious  impact  on  victims.    Messrs Douglas,  Nicholls  and  Tallentire  did  not  pause  to  consider  the interests of investors.  They were swept up in the euphoria of the then buoyant property market and there was a wholesale disregard of the fact that they were playing with other peoples’ money.

[j]       Offending of this kind calls into question the wisdom of investing in the finance industry generally.   It brings the finance industry as a whole into disrepute and that in turn affects the availability of loan capital to bona fide businesses.  There is a resulting adverse effect on the community as a whole.

In my view, the offending, particularly in relation to the Clyde 1 and 2 transactions, was very serious offending of its kind.

[94]     I accept that there are some mitigating features to the offending.  First, the transactions were disclosed as related party transactions in the directors’ reports to Perpetual Trust Limited, as trustee under the debenture trust deed.   There was no

concealment of the transactions as such.  Rather, there was a representation that the exceptions contained in the trust deed applied.   That was patently not the case. Secondly, I accept that outside professionals were involved, at least to a degree. However, such involvement as the outside professionals had, does not reduce the culpability of Messrs Douglas, Nicholls and Tallentire to any significant extent. There was no evidence of any actual advice by the outside professionals.   In my judgment, it is not now open to counsel to suggest that, implicitly, the outside advice must have been that it was possible for Capital + Merchant Finance Limited to fund the transactions in the ordinary course of its business.

Case Law

[95]     There is no tariff case for this type of offending.  Counsel have referred me to a very large number of decisions.   Many of them do not concern offending under s 220.   It has to be emphasised that Messrs Douglas, Nicholls and Tallentire have been found guilty of theft.  Theft is a serious offence.  Sentences imposed on finance company directors for offending under the Securities Act 1978 are not directly on point.

[96]     Even though it involved extensive fraud and dishonesty on a scale that is worse than the offending with  which  I am  now faced,  I found the decision  in R v Swann3 helpful.  In that case, Stevens J was sentencing two offenders, Mr Swann and Mr Harford, on three representative counts under ss 229A(b) and 228(b) of the Crimes Act 1961.  These sections are in the same subpart of the Crimes Act as s 220 dealing with unlawful taking and the maximum penalty for the offences in issue was

also seven years’ imprisonment.

[a]      Mr Swann’s offending occurred over a six-year period.  The offenders were employed by the Otago District Health Board.  They submitted fraudulent invoices which were paid by the Board.   In  excess of

$16.9 million was stolen.   Stevens J commented that it was hard to

think of a more serious and cynical breach of trust.  Mr Swann was

3      R v Swann HC DunedinCRI-2007-012-4181, 11 March 2009.

the principal offender.  Stevens J adopted a starting point of 10 years

and six months’ imprisonment for him.   He made an allowance of

12 months for Mr Swann’s relatively clear record, his remorse and attempts he had made at reaching an agreement regarding reparation. He chose one count as the lead charge, and imposed the maximum available sentence of seven years’ imprisonment on that count.   On the  other  two  counts,  he  imposed  sentences  of  two  years  and six months’    imprisonment.       Those    sentences    were    imposed cumulatively to the lead charge, concurrently with each other.   He imposed a minimum  term  of imprisonment  of four  years and  six months’.

[b]      In Mr Harford’s case, Stevens J took a starting point of five years’ imprisonment.     He  made  an  allowance  of  nine  months,  given Mr Harford’s   clear   record,   reparation   made   by   him   and   his cooperation with the investigation.   He did not impose a minimum term of imprisonment.

[97]     I have also considered Watson v R.4   In that case, Mr Watson pleaded guilty and he was sentenced to six and a half years’ imprisonment on two counts of theft, including one count of theft by a person in a special relationship under s 220. Mr Watson had been the General Manager and Financial Controller of a group of companies.  Between October 2000 and February 2009, he stole $5.5 million from the group.  In the District Court, a starting point of eight years’ imprisonment was adopted.  This was discounted by 20 percent to reach an end sentence of six and a half years’ imprisonment.   A minimum period of imprisonment of 50 percent was imposed.    The  Court  of  Appeal  dismissed  the  appeal  and  upheld  the  sentence imposed in the District Court.

[98]     In R v Bowden,5  Mr Bowden was sentenced on two charges of theft as a person in a special relationship.  He, along with others, was a director of Five Star

Consumer Finance Limited.  He was also a chartered accountant.  It was not clear

4      Watson v R [2012] NZCA 17.

5      R v Bowden [2012] NZHC 1249.

exactly how much was stolen by Mr Bowden, but the total loss to investors was expected to be some $37.5 million.  Mr Bowden was not the driving force behind the offending.   Heath J adopted a starting point of four years and nine months’ imprisonment.  Mr Bowden had pleaded guilty and there were a significant number of mitigating features.  He received an end sentence of nine months’ home detention and 100 hours’ community work.

[99]     A Mr Kirk and a Mr MacDonald were also directors of Five Star Consumer Finance.   They were sentenced in the District Court to two years eight months’ imprisonment, and two years three months’ imprisonment respectively on a raft of charges including two charges of breaching s 220.6    Neither had diverted the funds directly for their own use and only a relatively small sum was received directly by them. Each received discounts from the sentence that otherwise would have been

imposed  on  account  of  their  pleas  of  guilty,  previous  good  character,  and cooperating with the authorities in offering to give evidence against the principal offender.  The Court noted that the starting points were concessionary.

[100]   In R v Ludlow,7  Mr Ludlow was found guilty of six charges under s 220 of the Crimes Act.  The amounts involved ranged from $125,000 to $1,738,681.  The District Court adopted a starting point of six and a half years’ imprisonment and imposed an end sentence of five years seven months’ imprisonment.  Mr Ludlow’s behaviour was dishonest and there was concealment.

[101]   I have considered the related case of Gray v Serious Fraud Office.8   Mr Gray entered  a  plea  of  guilty  to  two  charges  under  s  220  and  to  a  charge  of  false accounting under s 260 of the Crimes Act.  This latter charge was secondary to the s 220  charges.    Some  $1.5  million  was  directly  lost  as  a  result  of  Mr  Gray’s offending, although there was no suggestion that he benefited personally.   On an appeal to this Court, Ellis J imposed a sentence of nine months’ home detention. There  were  a  large  number  of  mitigating  factors,  including  the  provision  of

assistance to the Crown and the payment of reparation.

6      R v Kirk DC Auckland CRI2009-004-024026, 21 December 2010.

7      R v Ludlow DC Auckland CRI 2009-004-023758, 20 October 2011.

8      Gray v Serious Fraud Office HC Auckland CRI-2010-404-476, 31 March 2011.

[102]   I have also considered cases such as R v Harrison,9  where a sentence of six and a half years’ imprisonment for conspiring to defraud members of the public, and using a document with the intention of obtaining a pecuniary benefit, was upheld by the Court of Appeal; R v Wallnutt,10 where there were 30 charges of theft by a person required to account, the amount involved was $1.7 million.  A starting point of eight years’  imprisonment  was  imposed  in  the  High Court  and  the  appeals  against sentence were dismissed by the Court of Appeal; R v Rose,11  where the charges involved  criminal  dishonesty over  a  five-year  period,  the  amount  involved  was

$16 million, and the Court of Appeal concluded that the starting point on sentencing should have been seven to eight years’ imprisonment;   R v Renshaw,12 where there were a number of charges including three charges of theft by failing to account, and the total amount involved was some $6.4 million.  Eichelbaum CJ adopted a starting point of 10 years’ imprisonment, and imposed a final sentence of seven years for various forgery charges, and sentences of six years’ imprisonment were imposed on the  other  charges;  and  R  v  Patterson,13   where  Mr Patterson  was  sentenced  to eight years’ imprisonment for using forged documents, with a minimum term of imprisonment of five years.   The Court of Appeal dismissed the appeal against sentence.

[103]   I have also considered other finance company cases cited by the parties, including R v Moses,14 R v Graham,15 R v Petricevic16 and R v Buckley,17 which was dealt with as recently as yesterday.

[104]   None of these cases are on all fours with the offending committed by Messrs

Douglas, Nicholls and Tallentire.  They are, however, all broadly helpful.

9      R v Harrison [2007] NZCA 297.

10     R v Wallnutt CA182/93, 8 August 1993.

11     R v Rose [1990] 2 NZLR 552.

12     R v Renshaw (1992) 8 CRNZ 695.

13     R v Patterson [2008] NZCA 75.

14      R v Moses HC Auckland CRI-2009-004-1388, 2 September 2011

15     R v Graham [2012] NZHC 575.

16     R v Petricevic [2012] NZHC 785

17     Serious Fraud Office v Buckley DC Auckland CRI-2011-004-017116, 30 August 2012.

[105]   I bear in mind that in a case of this kind, I am required to determine the appropriate sentence on a totality basis.  In R v Xie,18 the Court of Appeal indicated that the guidelines relating to concurrent and cumulative sentences do not detract from the principle that, in the case of multiple offending, the total sentence must reflect the totality and overall criminality of the offending and the offender.

[106]   Here, I have available a total term of imprisonment of 21 years in respect of

Messrs Douglas and Nicholls.   I have available a total term of imprisonment of

14 years in respect of Mr Tallentire.

Messrs Douglas and Nicholls

[107]   For the reasons I have already noted, in my judgment, Messrs Douglas and Nicholls’ offending was very serious.  It involved the aggravating features which I have identified.  It also had some mitigating features which I have already noted.

[108]   The three counts on which Messrs Douglas and Nicholls were convicted are similar in kind, and I accept that two of them, the Clyde 1 and 2 transactions, arise out of the same transaction.  Section 84(2) of the Sentencing Act applies and the two Clyde transactions should be treated on a cumulative basis.   However, I do not consider that the Numeria 1 transaction is part of the same series of offences.  While the offending is similar in kind, it is not connected in time or in subject matter with the Clyde offending.

[109]   In my judgment, the Clyde offending is the most egregious offending.  I take the Clyde 1 transaction  as the lead  charge,  and  I adopt as  my starting point  a sentence of imprisonment of six years in relation to that offence.  In relation to the Clyde 2 transaction, I also adopt as my starting point a term of imprisonment of six years.    I  have  treated  this  offending  as  being  concurrent  with  the  Clyde  1 offending.  On the remaining count, count 1, relating to the Numeria 1 transaction, I adopt as my starting point a sentence of two years and six months’ imprisonment.  I

have treated this offending on a cumulative basis.

18     R v Xie [2007] 2 NZLR 240.

[110]   I am satisfied that the totality principle requires that I adopt a cumulative approach as between the Numeria 1 transaction and the Clyde transactions in order to reflect the seriousness of Messrs Douglas and Nicholls’ overall offending in its entirety.  Given the maximum penalties available to me, I take as my overall starting point a sentence of eight years and six months’ imprisonment.  This starting point is consistent with the case law which is broadly applicable to thefts of this kind.

[111]   I now turn to consider aggravating and mitigating factors personal to each offender.

[112]   I am not aware of any aggravating features personal to either offender.

[113]   I accept that there are some mitigating features.  First, neither offender has any relevant previous convictions.   While this is generally treated as a relevant mitigating factor, I note the observations of the Court of Appeal in R v Zhang,19 where it is noted that any concession to be gained by reason of a previously unblemished record can be dispelled by the prolonged and premeditated nature of the offending.  Similar comments were made in Cole v Police,20 by this Court sitting as a full bench.  While the offences were clearly premeditated, I have treated the Numeria

1 offending as being unrelated to the Clyde 1 and Clyde 2 offending.   I do not consider that the offending was prolonged.  Rather, it was repeated.  I am prepared to allow each offender a discount of six months for their previous unblemished records and good character.

[114]   I also accept that both offenders have shown remorse.   The pre-sentence reports suggested that there was little by way of remorse that would justify a discreet discount from my starting point.  The respective letters, which I have quoted from above, show that both offenders now have at least some insight into their offending. They have now openly acknowledged their culpability and expressed, albeit very late

in the day, remorse.  I allow each offender a discount of six months for this remorse.

19     R v Zhang (2004) 20 CRNZ 915 (CA) at [26].

20     Cole v Police [2001] 2 NZLR 139 at [20].

[115]   Given that I am treating them on a cumulative basis, I split these discounts equally between the Numeria 1 offending and the Clyde offending.

[116]   I note that no reparation is offered by either offender.   There can be no discount for this factor.  Nor do I allow the offenders a discount for age.  There is no suggestion in the pre-sentence reports that their respective ages will make a sentence of imprisonment unduly difficult for them.  Finally, I do not allow a discount for the way in which the defences were run.  I accept that the defences were run responsibly and well.  There were, however, a very large number of matters still in issue.  The offenders did not enter pleas of guilty and in my judgment, they are not entitled to a de facto discount for responsibly run defences.

Mr Tallentire

[117]   I consider that Mr Tallentire’s offending was also very serious.  I accept that it is appropriate to treat both of his convictions on a cumulative basis.  In relation to the Clyde transactions, Mr Tallentire’s offending was indistinguishable from that of Messrs Douglas and Nicholls.   I adopt as my initial starting point a sentence of imprisonment of six years.

[118]   Again, there are no aggravating features personal to Mr Tallentire.

[119]   I accept that there are some mitigating features.  Mr Tallentire has no relevant previous convictions.   I am prepared to allow him a discount of six months to recognise his previous good character.

[120]   Further,  I  am  satisfied  that  Mr Tallentire  has  shown,  again  belatedly, remorse.  I have already read out the passages contained in the letter he sent to me. He now acknowledges his culpability, and he has shown genuine remorse in relation to both the actual offending, and its consequences.  I allow Mr Tallentire a further discount of six months to recognise that remorse.

[121]   Again, I note that no reparation is offered by Mr Tallentire.  There can be no discount for this.   Nor in my view, is any discount required because of his age. Again, there can be no discount for the way in which the defence was undertaken.

Sentences

[122]   Mr Douglas, Mr Nicholls and Mr Tallentire, will you please stand. [123]   Mr Douglas:

[a]       In respect of count 1, relating to the Numeria 1 transaction, I sentence you to a term of imprisonment of two years.

[b]       In respect of count 2, relating to the Clyde 1 transaction, I sentence you to a term of imprisonment of five years and six months.

[c]       In respect of count 3, relating to the Clyde 2 transaction, I sentence you to a term of imprisonment of five years and six months.

The sentences in respect of counts 2 and 3 are to be served concurrently.   The sentence in respect of count 1 is to be served on a cumulative basis.  In other words, the  total  sentence  I  have  imposed  is  one  of  seven  years  and  six  months’ imprisonment.

[124]   Mr Nicholls:

[a]       In respect of count 1, relating to the Numeria 1 transaction, I sentence you to a term of imprisonment of two years.

[b]       In respect of count 2, relating to the Clyde 1 transaction, I sentence you to a term of imprisonment of five years and six months.

[c]       In respect of count 3, relating to the Clyde 2 transaction, I sentence you to a term of imprisonment of five years and six months.

The sentences in respect of counts 2 and 3 are to be served concurrently.   The sentence in respect of count 1 is to be served on a cumulative basis.  In other words, the total sentence I have imposed on you is one of seven years and six months’ imprisonment.

[125]   Mr Tallentire:

[a]       In respect of count 2, relating to the Clyde 1 transaction, I sentence you to a term of imprisonment of five years.

[b]       In respect of count 3, relating to the Clyde 2 transaction, I sentence you to a term of imprisonment of five years.

The sentences are to be served on a concurrent basis.

Home Detention

[126] The transactions to which the convictions relate pre-date 1 October 2007, when the Sentencing Amendment Act 2007 came into force. Jurisdiction to impose a sentence of home detention is therefore not dependent upon the requirement that the offender be sentenced to a term of imprisonment of two years or less.

[127]   I accept  that home detention provides  a sentencing Court with  a further sentencing option, and that home detention provides a very real alternative to imprisonment.

[128]   Nevertheless, in my view, sentences of home detention in this case would be manifestly inappropriate.  They would not recognise the seriousness of the offending in this case, and they would not properly denounce the very serious offences which were committed.   In my view, the purposes detailed in s 7 of the Sentencing Act cannot be achieved by sentences other than sentences of imprisonment.

Minimum Period of Imprisonment

[129]   Section 86 of the Act requires me to consider the imposition of a minimum period of imprisonment.  I can impose a minimum period of imprisonment where I am  satisfied  that  the  minimum  period  of  imprisonment  under  s  84(1)  of  the Parole Act 2002 is insufficient for all or any of the following purposes:21

(a)       holding the offenders accountable for the harm done to the victim and the community by the offending:

(b)       denouncing  the  conduct  in  which  the  offenders  were involved:

(c)       deterring the offenders or other persons from committing the same or a similar offence:

(d)       protecting the community from the offender.

[130] In my judgment, it is not appropriate to impose minimum terms of imprisonments.   I have imposed stern sentences to hold Messrs Douglas, Nicholls and Tallentire accountable for their offending and the harm which they have done. Those sentences already denounce their conduct and should help to deter others from committing the same or similar offences.  Further, a minimum term is not required to protect the community from Messrs Douglas, Nicholls and Tallentire.

[131]   I am not persuaded that minimum terms of imprisonments are required and I

decline to impose the same.

[132]   Please take the prisoners down.

Wylie J

21     Parole Act 2002, s 86(2).