R v Morley
[2009] NZCA 618
•21 December 2009
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA84/2009
[2009] NZCA 618THE QUEEN
v
VAUGHAN WAYNE MORLEY
Hearing:12 August 2009
Court:Baragwanath, Randerson and Panckhurst JJ
Counsel:J L Smylie for Appellant
C R Walker for Respondent
Judgment:21 December 2009 at 3pm
JUDGMENT OF THE COURT
AThe appeal is allowed and the convictions on counts 1, 3 and 4 are quashed.
B The appeal against conviction on count 2 is dismissed.
CThe appeal against the sentence of three years imprisonment on count 2 is allowed. The sentence is quashed and a sentence of 21 months imprisonment is substituted.
DThe minimum period of imprisonment of 18 months is quashed.
____________________________________________________________________
REASONS OF THE COURT
(Given by Randerson J)
Introduction
[1] The appellant was convicted on 10 December 2008 after jury trial before Judge Rea in the District Court of four counts of causing loss by deception contrary to s 240(1)(d) of the Crimes Act 1961. This was a retrial following a successful appeal against conviction at his first trial: [2007] NZCA 357. On 23 January 2009 Judge Rea sentenced the appellant to three years imprisonment with a minimum period of imprisonment of 18 months. The appellant now appeals against conviction and sentence.
[2] At the conclusion of the hearing of the appeal we reserved our decision and granted bail to the appellant without opposition from Mr Walker. We were advised that, by that time, the appellant had served 451 days (or approximately 15 months) of the minimum term of 18 months imprisonment imposed upon him.
[3] We also sought and have received from the Crown further particulars of aspects of the Crown case. We are grateful to Mr Walker for the comprehensive additional materials received.
The conviction appeal
[4] Section 240 of the Crimes Act is a new provision forming part of Part 10 as substituted with effect from 1 October 2003 by s 15 of the Crimes Amendment Act 2003. The repeal and replacement of the former Part X of the Crimes Act has taken some time. The analogue of what is now s 240 was the former s 246, which made it an offence to obtain property by false pretences. It provided:
246 Obtaining by false pretence
15 May 1986 to 30 September 2003
(1)Everyone is liable to imprisonment for a term not exceeding 7 years who, with intent to defraud or cause loss to any person by any false pretence, causes or induces any person to execute, make, accept, endorse, or destroy the whole or any part of any valuable security, or to write, impress, or affix any name or seal on any document in order that it may afterwards be made or converted into or used or dealt with as a valuable security.
(2)Everyone who, with intent to defraud by any false pretence, either directly or through the medium of any contract obtained by the false pretence, obtains possession of or title to anything capable of being stolen, or procures anything capable of being stolen to be delivered to any person other than himself, is liable—
(a)To imprisonment for a term not exceeding 7 years if the value of the thing so obtained or procured exceeds the sum of [$300]:
(b)To imprisonment for a term not exceeding one year if the value of the thing so obtained or procured exceeds the sum of [$100] and does not exceed the sum of [$300]:
(c)To imprisonment for a term not exceeding 3 months if the value of the thing so obtained or procured does not exceed the sum of [$100].
[5] There were also offences of obtaining credit fraudulently (s 247) and conspiracy to defraud (s 257). Changes to Part X as a whole were initially considered as part of the Crimes Bill in 1989. The Bill was referred to the Crimes Consultative Committee, which largely agreed with the simplified form of drafting, but recommended some substantive changes. The Bill was not carried over to the new Parliament after the 1993 election. A new Bill (the Crimes Amendment Bill No 6) was introduced in 1999. While some parts of the Bill were enacted in 2001 this did not include the amendments to Part X.
[6] The Bill contained a new s 240 in substantially similar form to the present but omitting any reference to causing loss to any person and subclauses (b) and (c) of the definition of “deception” in what is now s 240(2). The addition of causing loss by deception as an offence per se came via Supplementary Order Paper (No 84) introduced on 6 May 2003. The reasons for the introduction of this provision are unclear. Speaking to the House on 12 June 2003, the Hon Phil Goff, Minister of Justice said:
The offence of obtaining by deception, or causing loss by deception, replaces the current offence of false pretences. That will cover a broader range of financial benefits than the current offence, and the element of causing loss is also new. A number of offences have also been broadened so as to include liability for reckless, as well as intentional, conduct – for example, obtaining by deception or causing loss by deception, a false statement by a promoter, receiving, and money laundering: 609 NZPD 6238.
[7] Although the Minister referred to the element of causing loss as being new, it was clearly part of the criminal offence established by the former s 246(1) in relation to dealings with valuable securities. However, the amendment did broaden the proposed s 240 beyond the scope of the former s 246(1), which spoke of an intention to cause loss and did not require proof of actual loss being caused.
[8] Section 240 in its current form provides:
240 Obtaining by deception or causing loss by deception
(1)Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—
(a)obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or
(b)in incurring any debt or liability, obtains credit; or
(c)induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or
(d)causes loss to any other person.
(2) In this section, deception means—
(a)a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and—
(i) knows that it is false in a material particular; or
(ii)is reckless as to whether it is false in a material particular; or
(b)an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or
(c)a fraudulent device, trick, or stratagem used with intent to deceive any person.
The Crown case
[9] The appellant was charged with causing loss to named persons by deception and without claim of right. The charges arose in relation to four separate properties which the appellant had attempted to purchase in the Napier area between October 2004 and February 2005. Mr Morley signed agreements for sale and purchase in relation to three of the properties but no agreement was signed in relation to the fourth.
[10] In each case, the essence of the Crown case was that the appellant had, by entering into the agreements (and, in two cases, by oral statements), represented that he had the means to fulfil the contracts when he well knew this was not the case. It was said he did so with intention to deceive. The Crown case was that the vendors of the properties were deceived by the representations. None of the transactions proceeded to settlement. It was alleged that the vendors acted in various ways in reliance on the truth of the representations and, in consequence, suffered financial losses. Some of these were in the nature of wasted expenditure while others were for losses which would be described in the civil context as loss of bargain or expectation losses. In some cases, a loss on resale at a lower price than that offered by the appellant was said to have been incurred.
[11] There was no challenge on appeal to the evidence adduced by the Crown at trial that the appellant had a lengthy history of insolvency. He had been discharged from bankruptcy shortly before the transactions at issue and had no means by which he could complete any of the purchases. Nor was there any challenge to the Crown case that there was sufficient evidence for the jury to infer that the appellant knew he could not fulfil the agreements to purchase and intended to deceive the persons with whom he was dealing by inducing them to believe he had the capacity to fulfil the agreements. It was not suggested at any stage that the appellant had any claim of right.
Grounds of appeal
[12] The appellant’s case on appeal centred on challenges to the summing up. In particular, it was said on his behalf that there was a lack of clarity and detail in relation to the element of causation of loss and the relationship of those losses to the alleged dealings and deceptions. We consider there are also a number of other issues to be addressed including:
(a)The nature of the implied representations arising from the appellant entering into written agreements (counts 1, 2 and 4), including whether there is any difference in this respect between a conditional and an unconditional contract.
(b)The nature of the loss contemplated by s 240(1)(d).
(c)Whether the Crown must prove that the appellant intended the losses to occur.
Causing loss by deception
[13] As the legislative history confirms, causing loss by deception is a new offence. There was no comparable provision in the previous legislation and we have not found a broadly similar criminal provision to exist in any other country. The closest parallel in other Commonwealth jurisdictions is s 2 of the Fraud Act 2006 (UK) which is expressed in slightly broader terms than s 240.
[14] The other offences now contained in s 240(1)(a)-(c), which are generically described as obtaining by deception, are not new but rather represent a recasting of previous provisions. The offence of obtaining ownership, possession or control of something by deception is very broadly expressed, but we anticipate cases decided under the previous law will guide its application. That is also the case with the offences of obtaining credit by deception and causing a physical act to be performed in relation to any document capable of being used to derive a pecuniary advantage (which we refer to here as a pecuniary document).
[15] There are at least two marked differences between the obtaining by deception offences on the one hand, and the offence of causing loss by deception on the other. The obtaining offences each specify a defined outcome. The offender must either obtain ownership, possession or control of something of value (s 240(1)(a)), or obtain credit (s 240(1)(b)), or induce or cause someone to perform a physical act in relation to a pecuniary document (s 240(1)(c)). By comparison, the offence of causing loss by deception describes an outcome but the nature of the loss is not defined.
[16] Secondly, the commission of the obtaining by deception offences necessarily contemplates an identifiable benefit obtained by the offender and a corresponding disadvantage to the victim. The offender will have obtained something of value, or obtained credit or will have secured some physical act in relation to a pecuniary document. Typically, the benefit received and the detriment suffered by the victim will be immediate, as where the offender consumes a meal and fails to pay for it. But the same cannot be said of the new offence of causing loss by deception.
[17] As the facts of the present case demonstrate, the appellant obtained no apparent benefit upon signing the agreements for sale and purchase. Ownership, possession and control of the properties was to remain with the vendors until the day of settlement. At no stage were the vendors deprived of their properties. Hence, they did not suffer an immediate detriment as do victims of the offences of obtaining by deception. We consider these differences are significant, particularly in defining a loss as contemplated by s 240(1)(d), an issue to which we shall return shortly.
Issue (a) the nature of the representations
[18] In terms of s 240(2), the false representation said to amount to a deception may be oral, documentary or by conduct. Here, both written and oral representations were asserted by the Crown. Mr Walker’s broad submission was that in entering into the various purchase arrangements the appellant impliedly represented to the vendor that he had the means to pay the purchase price on settlement date.
[19] Two counts were based on unconditional agreements for sale and purchase. Counsel could not cite any authority in support of the proposition that an implied representation of the above character arises upon entry into an unconditional agreement. Nor has our own research revealed one. Mr Walker relied by analogy on the representation implied in relation to tendering a cheque in exchange for goods or services. It is well established that in such circumstances the drawer of the cheque makes a representation that the cheque is a good and valid order for payment of the amount inserted in it: R v Miller [1955] NZLR 1038 at 1049 (CA). In such cases, the Crown had to prove under the former s 252 of the Crimes Act 1908 (obtaining with intent to defraud) that, at the time the cheque was tendered, the accused held no honest belief that the cheque would, in the ordinary course, be met.
[20] Similarly, in relation to post-dated cheques, the drawer impliedly represents to the payee that the state of facts existing at the date he handed over the cheque is such that, in the ordinary course of events, the cheque would on presentation be met on or after the specified date: R v Gilmartin [1983] 1 QB 953 at 962, (per Robert Goff LJ delivering the judgment of the English Court of Appeal in a case involving charges of obtaining property by deception contrary to ss 15 and 16 of the (now repealed) Theft Act 1968 (UK)).
[21] In Director of Public Prosecutions v Turner [1974] AC 357 at 367 (HL), Lord Reid concluded that, in the absence of any contrary statement, the law implies that the giver of a cheque represents that it will be honoured. Where the giver of the cheque knows that it will not be honoured, he may be convicted of dishonestly obtaining a pecuniary advantage for the purpose of s 16 of the Theft Act 1968 (UK). The other members of the House put the matter either on the basis of an implied representation of an intention to pay or an implied representation that the respondent had the means to pay: Lord McDermott (382); Lord Morris (386); Lord Hodson (389) and Lord Pearson (391). Other statements to similar effect may be found in Spencer Bower, Turner & Handley Actionable Misrepresentation (4ed 2000) at [18].
[22] Representations have also been implied in relation to the use of credit and bank cards. In Metropolitan Police Commissioner v Charles [1977] AC 177, the House of Lords held that when the drawer of a cheque given in exchange for goods or services uses a cheque card (which contains an undertaking of the bank to honour cheques up to a defined level), the drawer makes a representation to the payee that he has authority as between himself and the bank to use the card so as to oblige the bank to honour the cheque on presentation: see particularly the discussion by Lord Diplock at 182. To similar effect, see the analysis of Lord Roskill in R v Lambie [1982] AC 449 (HL). Lord Roskill, delivering the judgment of the House of Lords, held at 460 that the presentation of a credit card had nothing to do with the respondent’s credit standing at the bank but was a representation to the retailer of the respondent’s actual authority to contract with the retailer on terms that the bank would honour the voucher on presentation.
[23] These authorities demonstrate that the law implies appropriate representations in relation to a variety of transactions. The nature of the implied representation is to be distilled against the background of the relevant contractual arrangements.
[24] Representations have been implied in numerous other contexts as well. In R v Waterfall [1970] 1 QB 148, the English Court of Appeal held that in engaging a taxi the appellant represented that he had the means to pay for the fare. And in DPP v Ray [1974] AC 370 the House of Lords confirmed that the appellant in entering a restaurant and ordering a meal impliedly represented he had the ability to pay. The same has been held of someone who registers as a guest and stays at an hotel: R v Harris (1975) 82 Cr App R 28 (CA).
[25] But the analogy between these examples and the present case is not precise. In the cheque and credit card cases a detriment or loss accrues immediately through the provision of goods or services, even though the victim may be unaware of his loss until some time later (where a cheque or voucher is dishonoured). Likewise in the case of a taxi fare, restaurant meal or hotel bed, the customer receives a service or goods and the provider sustains a loss upon non-payment.
[26] Where, however, a contract for the sale and purchase of land does not proceed, the vendor retains possession and ownership of the land and the purchaser obtains no obvious benefit. It is, therefore, a necessary feature of the statutory scheme that criminal responsibility under s 240(1)(d) may arise where a loss is caused independently of any benefit obtained by the accused.
[27] Despite this distinction we are satisfied that the analogy contended for by the Crown is sound, at least in relation to unconditional agreements for sale and purchase. In analysing the nature of any implied representation, it is important to keep in mind the general requirement that a representation must relate to a statement of existing fact, rather than a statement of future intention which cannot be distinguished from a contractual promise: Spencer Bower, Turner & Handley at [10] to [21]. On that footing, a purchaser who enters into such a contract for the purchase of land makes an implied representation that the facts existing at the time of signing the contract are such that, on settlement date, he will have the amount required to settle. In the present context, that translates to an implied representation by the appellant that, at the date he entered the contract, he had the means to fulfil it on settlement date. Where the purchaser knows that this implied representation is materially false (or is reckless in that regard), he or she may be criminally responsible under s 240 if the other elements constituting the offence are also present. Another way of expressing this is that a purchaser signing an unconditional agreement for sale and purchase of land makes an implied representation that he or she then believes the amount required to settle will be available at the time of settlement: see the view expressed in Simester and Brookbanks Principles of Criminal Law (3ed 2007) at [20.3.1](1)(a).
[28] We are also prepared to accept that there may be criminal responsibility under s 240(1)(d) on the basis that there may be an implied representation that the purchaser then intends to complete the contract on settlement date. Criminal responsibility may arise in either case if the purchaser knows the implied representation is untrue or is reckless as to its truth or falsity and the other elements required to establish proof of a criminal offence under the section are proved. This formulation would also criminalise conduct by a person who enters into a contract without any intention to complete, even if that person does in fact have the means to complete.
Conditional contracts
[29] One of the agreements signed by the appellant (count 1) was conditional upon his raising finance. The relevant clause in the agreement spelt out an obligation upon the purchaser to do all things reasonably necessary to obtain finance by the settlement date. The purpose of inserting a condition of this kind is to protect the purchaser from liability should he or she fail to obtain finance which the court will construe as requiring reasonable efforts: Burrows, Finn & Todd The Law of Contract in New Zealand (3ed 2007) at [8.2.3](c).
[30] The finance condition alerts the vendor to the prospect that the purchaser may not be able to complete the purchase. Its existence is effectively a representation that the purchaser does not have sufficient funds to settle the transaction and that, if he is not able to raise the finance, the contract will not proceed. While the contract requires that the purchaser will make reasonable efforts to secure funding, he is making no representation to the vendor as to the prospects of success. There being no representation on that score there can be no foundation for an implied representation of the kind relied upon by the Crown.
Issue (b) the nature of the loss
[31] As already noted, s 240(1)(d) provides no guidance as to the type of loss which the legislature intended, save perhaps in one respect. The offence of obtaining by deception created by s 240(1)(a) is defined in terms of obtaining ownership, possession or control of something of value either “directly or indirectly”. These words are not used with reference to the other three offences defined in subs (1).
[32] In Simester and Brookbanks at [20.4] it is suggested that the inclusion of the words “directly or indirectly” covers the situation where the deception caused the representee to initiate a process whereby the accused obtains a subsequent benefit, perhaps from someone other than the initial representee. The authors cite R v Bennett (1978) 68 Cr App R 168 (CA), a case where time sheets contained a false representation which remained operative through a chain of events culminating in the eventual receipt of an overpayment of wages by cheque. Despite the use of the words “directly or indirectly” in s 240(1)(a), the authors question whether their inclusion makes a material difference, since causation may commonly be indirect as well as direct, so that the additional words may be “a precaution rather than a necessity”.
[33] While this may be so in relation to the offences of obtaining by deception, where the nature of the benefit obtained is defined in the relevant offence section we regard the omission of the words “directly or indirectly” from s 240(1)(d) as significant. The absence warns that indirect losses may be too remote to be the subject of such a change. We prefer the view that, read in the context of the section as a whole, a loss caused by deception must be in the nature of a direct loss.
[34] Since the gist of the offence is causing loss by deception it is clear that the loss must be a consequence of the deception, here the false representation of an existing belief in the ability to pay the purchase price at settlement. Put another way, the loss alleged by the victim must have been induced by, or caused in reliance upon, the deception. But the deception need not be the only operative factor, so long as it played a material part in occasioning the loss. These observations reflect the conventional and settled approach to the assessments of cause and effect in the context of a false representation.
[35] Establishing the amount of the loss may be important in some cases since s 241 provides for varying penalties depending on the amount of the loss: a maximum of seven years imprisonment where the loss exceeds $1000; one year imprisonment where it exceeds $500; and three months imprisonment where the loss is less than $500. The amount of the loss will also be relevant to the assessment of culpability.
[36] Usually, establishing a direct loss caused by the deception will not be problematic. Obvious examples include being induced by the deception to part with money or to invest in a scheme which fails. Wasted expenditure or out of pocket costs induced by the deception would also qualify as a direct loss so long as the expenditure would not have been incurred irrespective of the deception.
[37] But, in the present case, a substantial component of the loss alleged by the Crown on some counts was the difference between the sale price which the appellant contracted to pay and the sale price actually achieved upon a re-sale. Where the re-sale price is a lesser figure, is the difference a loss caused by the false representation for the purposes of s 240(1)(d)? In contractual terms, a loss of this type would be characterised as a loss of bargain or an expectation loss. We do not consider a loss of this type is the kind of loss criminalised by the section. We reach that conclusion partly as a matter of statutory interpretation and partly as a matter of principle.
[38] As to interpretation, a statute must be read in context. Section 240(1)(a) to (c) in essence provide respectively for:
(a)Obtaining the complainant’s property;
(b)Obtaining credit from the complainant;
(c)Causing the complainant to deal with a pecuniary document to his or her detriment.
[39] Diminution or impairment of the complainant’s position is express in relation to (a) and (b) and, we think, implied in relation to (c). So what Burrows & Carter Statute Law in New Zealand (4ed 2009) at 232-233 call the “associated words” rule of interpretation suggests that (d) is likely to concern a similar form of diminution or detriment to that criminalised by (a) to (c).
[40] Principle also supports the proposition that expectation loss is not intended to be embraced by s 240(1)(d). The issue of loss arising from deception was canvassed at length by this Court in Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15. The proceeding was under the Fair Trading Act 1986 to recover loss arising from misleading or deceptive conduct under ss 9 and 14 of the Act. In terms of s 43, where the court finds that a person has suffered loss or damage by conduct which constitutes a contravention of the Act, the court may make:
...
(d) An order directing the person who engaged in the conduct ... to pay to the person who suffered the loss or damage the amount of the loss or damage:
[41] The majority of this Court held that loss of bargain or expectation damages could not be recovered under s 43 but could only be recovered under a claim for breach of contract against the vendor.
[42] Gault J said at 22:
The task is to identify the loss or damage suffered by (ie caused by) the misleading or deceptive conduct. In particular circumstances that will involve inquiry as to what the conduct caused the plaintiff to do or not do and the consequences flowing from that.
And later on the same page:
As pointed out in the passage already quoted from McGregor on Damages, the loss of bargain or of expected future returns flow not from the conduct that is wrongful, but from the failure to implement a promise.
[43] The majority emphasised the distinction between loss flowing from the representation as distinct from the performance of the representation. In their joint judgment, Henry and Blanchard JJ said at 26:
Section 9 creates a duty not to mislead. If the duty has been breached money may be awarded to make good, or compensate for, loss or damage which has been caused by the breach. Where there has been an actionable wrong, it is a general and basic principle of law that the remedy by way of monetary award is to put the wronged party in the same position as he or she would have been but for the wrong. Where the wrong is misrepresentation leading to a contract for purchase of property, the position to be restored is that which would have enured had the misrepresentation not been made.
[44] The majority also emphasised the need to focus on the terms of the relevant statute. As Gault J put it at 22:
Section 9 of the Act prohibits conduct, it does not render representations binding. It is s 6 of the Contractual Remedies Act which in New Zealand has that effect. The representation, if it induced entry into a contract, gives rise to a claim as on breach of contract with the measure of damages appropriate for that.
[45] See also the joint judgment of Henry and Blanchard JJ at 25.
[46] We consider that the majority judgments in Cox & Coxon are valuable for their emphasis upon the importance of the statutory context and for drawing the important distinction between loss caused by conduct (here a false representation), as opposed to loss caused by non-performance of the representation. The conduct proscribed by s 240(1)(d) is simply deception causing loss. In this statutory context we are satisfied that loss of a bargain or expectation damages are not caught by the section. Rather, loss flowing from the deception is assessed by the extent to which the complainant’s position prior to the deception has been diminished or impaired. The same approach to loss is adopted for the tort of deceit: see McGregor McGregor on Damages (18ed 2009) at [41-002].
[47] An example related to the facts of this case helps to illustrate the general principle. If an accused agrees to buy the complainant’s property for $1,000, but has no intention of settling and does not do so, and the victim resells to another for $800, an expectation loss of $200 results. But otherwise the victim is not deprived of anything. His or her property rights remain unaffected and, in the example, a resale eventuated, although at a lesser price. In principle, there is no diminution of the complainant’s rights, only the loss of an expectation to receive a price of $1,000. Such a loss would undoubtedly be recoverable in contract for damages but it is not a relevant loss for the purposes of s 240(1)(d).
[48] But there may be cases where, during the currency of the agreement for sale and purchase, the property owner does suffer a diminution or impairment of his or her property rights. If another offer to purchase the property for $1,000 were received, but not accepted because the fraudster’s agreement remained in existence, the owner would have lost the opportunity to sell to a bona fide third party and relevant loss would be established. In this example, the loss is not an expectation or benefit derived from the fraud itself. Rather, the loss flows from an impairment of the owner’s right to sell his or her property given the existence of the fraudster’s purchase agreement.
[49] Loss in the case of an agreement for sale and purchase may more commonly be caused through a deception practised by or on behalf of the vendor. In the joint judgment of Henry and Blanchard JJ in Cox and Coxon Ltd v Leipst it was recognised at 26 that, in the case of deceptive conduct by or on behalf of a vendor (in circumstances where the purchasers would not have purchased but for the deceptive conduct), the loss would prima facie be based on the difference between the value of the property and the price paid or, in some circumstances, the loss of an opportunity to buy a different property. In such a case, the vendor’s position is clearly diminished in consequence of the deception when compared with his or her position prior to the deception. If, on the other hand, the purchasers would have proceeded with the transaction regardless, the resulting loss could only arise “in some collateral way, such as lost opportunity to buy at a reduced price or some other direct out of pocket consequence”.
[50] It is unnecessary for present purposes to consider whether criminal liability may arise under s 240(1)(d) for losses other than monetary losses or losses which may be quantified in monetary terms: see the extensive discussion by the New South Wales Court of Appeal in Wills v Petroulias (2003) 58 NSWLR 598.
Issue (c) must the Crown prove an intention to cause the loss?
[51] Simester and Brookbanks at [20.8] and the commentary in Adams on Criminal Law at CA240.11 suggest that proof is required that the accused intended to cause the loss or at least was reckless in this regard.
[52] In relation to each of the three offences of obtaining by deception the offender will be aware of the result or outcome of his deception. Of necessity, he or she will have obtained something of value, obtained credit or secured the performance of a physical act in relation to a pecuniary document. But should this awareness be termed an intention? We do not think so. The defined outcome is part of the actus reus and factual in nature. The occurrence of the outcome must be established by the Crown as a factual element of the offence.
[53] Turning to s 240(1)(d), the mental elements of the offence are clearly defined. First, proof of an intent to deceive is essential. An intention to deceive requires that the deception is practised in order to deceive the affected party. Purposeful intent is necessary and must exist at the time of the deception. Secondly, the offender must, in the case of a false representation, have knowledge of, or reckless indifference as to, the material particular which renders the representation false. To imply an additional requirement that the offender must intend to cause the loss in question (or be reckless as to its occurrence) would be to read-in or imply a further mental element which is not indicated by the wording of the section itself.
[54] We accept, however, that there may be circumstances where loss arising from a deliberate deception is unexpected and could not reasonably have been foreseen. To impose criminal responsibility in such circumstances would not be consistent with principle. We consider that the deception must be such, objectively viewed, as to have been likely to cause at least some loss at a level which is more than trivial: see by analogy R v Lee [2006] 3 NZLR 42 at 79 (CA).
Summarising the elements of the offence
[55] In light of this analysis the present charges, framed with reference to deception by a false representation, required proof that:
(a)with an intent to deceive,
(b)the appellant made a representation which was materially false,
(c)knowing of the falsity or being reckless in that regard, and that
(d)through the false representation he caused relevant loss to another in circumstances where, viewed objectively, some loss was likely to occur.
Analysis of the counts
Count 1- Contract subject to finance
[56] On 6 October 2004 the appellant entered into an agreement with a Mr and Mrs Rieter to purchase a property at Poraiti Road, Napier for $1.4 million. Settlement was to take place on 26 November 2004. The agreement was expressed to be conditional on finance in a sum “sufficient to settle”. The finance was to be arranged within 14 days from acceptance of the contract by the vendors. Clause 8.7 of the standard contract provided:
8.7 If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise express provided:
(1)...
(2)The party or parties for whose benefit the condition has been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date of fulfilment.(emphasis added)
[57] The agreement was also conditional upon the purchaser’s solicitor approving the title within 10 working days of the agreement. There was no evidence as to whether this condition was satisfied.
[58] Mr Rieter’s evidence was that the finance date was extended until 29 October but the finance was not arranged. The contract did not therefore proceed even though Mr Rieter offered, through his solicitors, to provide some bridging finance. In the meantime, his wife had taken a week off work to pack the house prior to moving, thereby sustaining $540 in lost wages. In addition, legal fees were incurred of $347. Mr Rieter accepted that he was well aware that the contract was conditional and what that meant.
[59] In relation to this count, the Crown also relied on the evidence of a real estate agent (a Mrs Yates) that the appellant represented to her that he had assets of approximately $4 million and that he had recently sold a property in Auckland. She had passed that information on to Mr and Mrs Rieter who had no direct dealings with the appellant.
[60] We consider that the conditional nature of the contract was fatal to the Crown case (see above at [29] and [30]).
[61] Moreover, the losses said to have been incurred resulted from the vendor’s actions taken in anticipation of settlement when they acknowledged the prospect that finance might not be arranged. In such circumstances, such losses could not be said to be caused by any deception on the part of the appellant. The loss must be caused “by” the deception and not by steps taken by the person suffering the loss on the basis of assumptions which it is known may not be fulfilled.
[62] For count 1, the Crown also relied on the oral representations made by the appellant to the vendors’ real estate agent to the effect that he had substantial resources and had recently sold a property in Auckland. The representations as to substantiality were undoubtedly false and intended to deceive. It is not necessary, in terms of s 240, that the representations are made to the person suffering loss. It is sufficient if the loss is suffered by a person as a result of the deception of another. In this case, the real estate agent said she passed on the representations to the vendors. However, the oral representations cannot prevail at the expense of the contractual terms. The conditional contract displaced the puffery which preceded it.
[63] A final point is that the contract could have failed through non-fulfilment of the finance condition even if the purchaser had been bona fide. In such a case, the purchaser could not be held liable in a civil proceeding for the losses. Nor indeed could the appellant be liable civilly for anything more than failing to take reasonable steps, as required by the common law and cl 8 of the contract, to secure finance. To impose criminal responsibility in such circumstances would not be consonant with the appellant’s contractual liabilities in civil law.
Count 2- Unconditional contract
[64] On 23 November 2004 the appellant entered into an unconditional agreement to purchase a property at Amner Place, Napier for $450,000 from a Ms Roughan. The agreement provided for the payment of a deposit of $20,000 by 25 November with settlement to take place on 14 January 2005. The deposit was not paid but no steps were taken by Ms Roughan to avoid the contract. There was no indication prior to settlement that the contract would not proceed other than the non-payment of the deposit. On the settlement day, Ms Roughan’s lawyers were advised that the transaction would not proceed.
[65] Prior to signing the agreement with the appellant, Ms Roughan had signed an agreement to purchase another property, subject to the sale of her own. The real estate agent involved (a Ms Hughes) gave evidence that Ms Roughan was under pressure to make her purchase contract unconditional on the day she received Mr Morley’s offer to purchase her property. In reliance on the unconditional agreement she had with the appellant, she agreed the same day that the contract she had to purchase another property could be treated as unconditional. When the appellant’s agreement did not proceed, she was obliged to sell her property to an alternative purchaser at a price $10,000 below that which the appellant had offered. In addition, she incurred penalty interest of approximately $1900 on the delayed settlement of the purchase and her alternative property plus legal costs of $560 payable to the vendor’s solicitor on that transaction.
[66] The loss by way of penalty interest was of such a kind as to be likely to occur as a consequence of the deception and is properly characterised as a direct loss. However, the loss on re-sale is not relevant loss for the purpose of the section. The loss was of a kind recoverable for breach of contract but the deceptive conduct did not impair or diminish the vendor’s position prior to that deception. The legal costs would have been payable in any event and are not relevant loss.
[67] In summing up, the Judge put count 2 on the basis that the appellant was representing himself as “a person who can meet the settlement on the date”. We would have preferred a direction that the appellant impliedly represented to the vendor that he believed he had the means to complete the settlement but the Judge’s direction conveyed the essence of what the law requires and would not have misled the jury.
Count 3- No signed contract
[68] In this case, no agreement for sale and purchase was ever signed either by the appellant or by the proposed vendor (Horvath Construction Ltd). On 23 January 2005 the appellant viewed a show home Horvath Construction had built in a new subdivision in Clive. He indicated to Mrs Horvath (a director of Horvath Construction) that he was interested in purchasing the home for his father-in-law. Two days later, the appellant advised Mrs Horvath that he would purchase the home. He made a verbal offer to purchase the property for $415,000 which was to be a cash offer with a quick settlement within three days ie by 28 January. The appellant was to be permitted to take possession of the property upon full payment of the purchase price pending the title becoming available once the subdivisional requirements were completed. A draft agreement for sale and purchase prepared by Horvath Construction’s solicitor provided for a cash purchase at $415,000 with possession on 28 January 2005, subject to a special condition as to possession and title as already discussed.
[69] Mrs Horvath said Mr Morley continued to assure her that settlement would take place on the day planned but it never occurred, despite advice from the appellant that the funds necessary to complete the purchase would be available the following week. In anticipation of settlement, furniture was removed from the home and cleaners were brought in. The evidence of any actual expenditure was vague. Mrs Horvath said they were “probably out of pocket by $1000”. In cross-examination, Mrs Horvath said they believed the appellant when he said the contract would be signed and a purchase would be completed on the day discussed. However, she accepted in cross-examination that until the agreement was signed this was just “puffery”. She also accepted that the cleaning and preparation of the show home was “just part and parcel of selling homes and the business that we have”. At the time the market was very favourable and properties were being regularly sold. Legal costs of $170 were incurred in relation to preparation of the draft agreement.
[70] It is axiomatic that a contract for the sale and purchase of land is not enforceable unless signed in writing by the party to be bound thereby. The Crown correctly accepted this was the case but submitted to the jury that the appellant had given Mrs Horvath a firm assurance that he would be buying the property and represented to her that he was “good for it” in the sense that he would be able to complete the transaction. That representation, the Crown said, was false and known by the appellant to be false. He intended her to act on it. She did so and thereby suffered loss. In summing up, the Judge put the matter on the basis that the appellant had presented himself as a legitimate buyer, anxious to settle, and having the money organised. He was thereby representing that he had the ability to purchase the property.
[71] We would not rule out the possibility that, in some circumstances, oral representations made in pre-contractual negotiations for the purchase of land might give rise to criminal responsibility under s 240. However, our own review of the evidence in relation to count 3 indicates that the evidence fell short of amounting to representations of fact in the sense relied upon by the Crown. Rather, they amounted to statements of future intention instead of representations as to existing facts. Statements of future intention are not capable, by themselves, of amounting to a representation for the purposes of s 240.
[72] Even if there had been a false representation of fact made by the appellant (with the necessary knowledge of falsity or recklessness in that respect accompanied by an intention to deceive), Mrs Horvath’s concession that, in the absence of a written contract, the appellant’s assertion was mere “puffery” compels the conclusion that a properly directed jury could not on the evidence have concluded that the losses sustained were caused by any deception on the appellant’s part. Rather, they were steps taken by Horvath Construction on the company’s own initiative in anticipation of a settlement which the company well knew might not occur.
[73] Finally, aside perhaps from the specific evidence about the wasted expenditure on legal fees in connection with drafting the agreement, Mrs Horvath’s evidence about the other losses for cleaning and related costs was vague and unsupported by any documentary evidence. In cross-examination, defence counsel also established real doubt as to whether those costs would have been incurred irrespective of any conduct on the part of the appellant.
Count 4- Unconditional contract
[74] On 22 February 2005 the appellant signed an unconditional agreement to purchase a property at Shakespeare Road, Napier Hill from a Ms Demanser for $345,000. A deposit of $20,000 was required with settlement due on 28 April 2005. No deposit was ever paid and the transaction did not proceed. Ms Demanser gave evidence that, in reliance on the unconditional contract, she entered into another agreement to buy a replacement property. As a result of the failed settlement of the contract with the appellant, she had to resell her property at a price $50,000 below the appellant’s offer. Ms Demanser subsequently obtained summary judgment against the appellant on an undefended basis for a little over $60,000 which comprised the $50,000 loss on the resale of the property plus some additional costs and interest. The judgment was not met.
[75] The loss on re-sale (while recoverable in contract as the summary judgment shows) was not relevant loss for the purposes of s 240(1)(d). It amounted to an expectation loss based on the appellant’s failure to honour his contractual promise. The evidence adduced at trial falls short of establishing that the additional interest and costs were caused, as the prosecutor submitted at trial, by the late settlement of Ms Demanser’s purchase contract (caused by the appellant’s conduct). We suspect this is the case, but the evidence leaves open the possibility that the interest and costs were simply adjuncts to the expectation loss which is not relevant loss.
[76] It follows that relevant loss was not proved beyond reasonable doubt although there may be evidence which could have so proved the relevant loss.
Conclusion on conviction appeal
[77] For the reasons given, we consider that the convictions on counts 1, 3 and 4 cannot be sustained. The appeal is allowed on those counts and the convictions are quashed. No retrial is ordered in relation to those counts.
[78] The appeal against conviction on count 2 is dismissed.
Sentence appeal
[79] At the time of sentencing, the appellant was 46 years of age and had some 27 prior convictions for dishonesty over a period from 1983 to 2002. He was imprisoned on such charges for four months in 1983, five months in 1988 and 12 months in 1989. As a result of the summary judgment obtained, he was an undischarged bankrupt again at the time of sentencing. The probation officer regarded him as having a high risk of reoffending and a low motivation to address his behaviour.
[80] The single count upon which we have sustained his conviction attracts a maximum sentence of seven years imprisonment. Plainly, this was one of the more serious offences of the four with which the appellant was charged. The Judge referred to the financial and emotional effects on the victim of the appellant’s offending and could see no mitigating features.
[81] The Judge imposed sentences of three years imprisonment in relation to counts 2 and 4 with terms of six months and two months on the remaining counts, all terms to be served concurrently.
[82] Given the quashing of the convictions on three counts and the reduction of relevant loss on count 2 we consider it is appropriate to allow the appeal against sentence on that count and to reduce the effective term of three years imprisonment to 21 months. A deterrent response is called for given the seriousness of the offending and the previous convictions. In the circumstances, we also quash the minimum term of imprisonment of 18 months.
Solicitors:
Crown Solicitors, Napier
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