R v P HC Hamilton CRI 2005-419-122

[2005] NZHC 72

This case has been anonymized

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CRI 2005-419-122

THE QUEEN

v

P

Hearing:         29 September 2005 (Heard at Hamilton)

Counsel:         J Foster for Crown

M J Hammond for Prisoner

Judgment:      29 September 2005

SENTENCE OF ASHER J

Solicitors:

Almao Dough, DX GP20023, Hamilton (J Foster)

Tompkins Wake, DX GP20031, Hamilton (M J Hammond)

R V P HC HAM CRI 2005-419-122  29 September 2005

[1]        P   , you appear before the Court for sentence having pleaded guilty to two charges; the first, of conspiring with two others by fraudulent means to defraud various financial institutions between 1 January 2001 and 30 September 2003; and, second, engaging in a money laundering transaction knowing that all or part of the property was the proceeds of a serious offence.

[2]      These charges are part of the outcome of a lengthy and complex inquiry into a very considerable number of offences, which involve many individuals and companies.   Your  part,  as  has  been  pointed  out  today,  was  part  of  a  series  of particular  transactions.    In  sentencing  you,  I rely on  the  facts  which  you  have admitted by pleading guilty to these charges, and I rely on the Police summary of facts which, in general terms, you accept.  This does not necessarily mean that what I say about other persons who were involved will necessarily be proven against those people in Court at a later date.  That will be a matter for later hearings.

Factual background

[3]      The summary of facts alleges that a large number of persons and associates had been working together in a wide variety of transactions, and the theme of that activity was to mislead financial institutions in various ways.  There was a hierarchy in this organisation and there were various types of offending.   One of types of offending, the type that you were drawn into, is something known as the “price hydraulic” or “price hydraulicing”.

[4]      The price hydraulic involves persons entering into an agreement to buy a property, and then by one means or another presenting the transaction to a financial institution as being for a purchase at a higher price; thereby hydraulicing or dragging up the apparent price.   The financial institution is duped into believing that the transaction is for that higher price, and it lends what it believes is a percentage of that higher price, normally 80%.  The Bank is told by the conspirators, and believes, that a deposit has been paid and that there is a cash component so that the difference between the 80% and the 100% is cash paid, which is a cushion in the event of default.  In fact, what the Bank does not know is that that agreement is really a sham

and that the real price equates to the amount of the mortgage funds that they are advancing.  This means that the perpetrator of the fraud can buy the property without putting in any cash.

[5]      Under this particular aspect of this scheme, your co-offenders, and then later you,  would  enter  into  sale  and  purchase  agreements  for  houses.    The  houses generally were houses that were up for mortgagee sale or where a mortgagee sale was pending and the Home seekers and Educational Charitable Trust was generally used to purchase the properties.

[6]    The  perpetrators  then  entered  into  contemporaneous  or  near contemporaneous contracts between a partnership consisting of you or your mother or the P    Family Trust, to buy the property at an inflated price.  I note today that it seems that it is just the P    Family Trust that was the second purchaser in the relevant transactions.  Thus, in your particular case applications for finance would be made in the name of the P    Family Trust.

[7]      The applications would forward what was the sham agreement to the Bank, and there would also be other material, such as inaccurate valuations and letters confirming employment.  I note there is some difference between counsel as to the level of your involvement on that aspect, but I do not see that as of particular relevance.   What is of relevance is that it is accepted that you were involved in presenting agreements for sale and purchase that were contrived, and you knew would mislead the Bank and not correctly set out the position as to purchase.

[8]      In this way the partnership and the trust was able to purchase 20 rental properties from March to October 2002.  These charges, the charges to which you pleaded guilty, relate to sixteen houses.   The total contract value was $1,620,250. This involved the Bank being misled into thinking that deposits of $243,245 had been paid.

[9]      For its success this scheme requires a rising property market.  The perpetrator of the fraud, having purchased the property for nothing, is able then to retain it and, if necessary, at a later date sell it for a greater sum.   If all goes well the financial

institution will not lose, and the perpetrator of the fraud will make a profit.  If, of course, the property market does not go up, the financial institution may find that its advance is not covered by sufficient equity in the property, and there can be substantial losses.

[10]     These  sorts  of  schemes  damage  the  way  our  financial  institutions  and mortgage systems work.   If financial institutions do lose money because of these sorts of frauds, New Zealanders generally suffer.   The stability of our system of buying and selling homes is affected.  Public confidence, in our property system, can be affected as well.

[11]     In this case, sadly for you, you became involved through your father.  You had been living in England for some time and you were there with your wife and two children when he contacted you.  The Court has no way of knowing precisely how your involvement began, but I accept your counsel’s submission that it was at the instigation of your father that you were persuaded, first, to lend your name to some family transactions of this type and to then get involved further.  I do note, however, that you were probably more experienced in business matters than your father at that stage.

[12]     A number of the purchases took place before you returned to New Zealand, but the majority occurred after your return.   Six took place before 29 April 2002, which was the date of your return.

[13]     I also accept your counsel’s submission that your involvement can be seen on a sliding scale, that had escalated over time.   In relation to the early transactions when you were in England, your involvement was fairly passive and involved you in just lending your name.  The level of culpability was lower at that stage, although I note counsel for the Crown’s point that in terms of the Family Trust you were both settlor, trustee and discretionary beneficiary, which certainly placed you right at the heart of that structure.

[14]     As I have said, the level of culpability was lower when you were in England but on your return to New Zealand there was more involvement.  The schedule of

documents signed by you shows that you signed quite a number of the relevant documents in a variety of transactions.    After your return you signed some of the second agreements for sale and purchase, which were effectively the false documents which misled the Bank.  You signed on at least three occasions that I can see.  I do note that in the course of submissions it was mentioned that you had signed five, but that might have included the original agreements for sale and purchase.   There is evidence that at least on one occasion you were the major contact with the Bank putting to  the  Bank  the  false  details  of  the  hydraulic  sale  and  the  non-existent deposit.

[15]     The total period of your offending ran from April through to October 2002, although the transactions that you were most involved in in New Zealand were entered into between 7 May and 11 July 2002.  As a consequence, the family trust acquired a property portfolio without having to outlay funds.  That effectively meant that at the expense of the Banks, which unbeknown to them financed to a level of

100%, the trust was in a position to make substantial long-term capital gains.  As I have stated, the combined value of the 16 properties was $1,620,250.  In respect of that amount, there were misrepresentations that deposits of $243,245 had been paid. So it can be seen that the exposure of the Banks, if things had gone wrong and the property market had gone down rather than up, was considerable.   The amount of advances actually received from lenders, who unwittingly believed that the second agreements were true arms length agreements, was $1,251,999.

[16]     Ultimately, in a sad tale of the progress of involvement in fraud, you initiated your own transaction, the Khandallah transaction, in which you agreed to purchase that property for your own use buying in the name of the Home Seekers Trust.  Your counsel points out that active involvement in creating the fraudulent second agreement did not take place until November.   However, you must have been, at least, leaving the door open for using the fraudulent scheme when you purchased shortly after your return from England in June, because you used the Home Seekers Trust when there would have been no need to do so if this was an innocent personal purchase.

[17]     The papers that you ultimately did prepare for Khandallah showed a purchase of a greater sum than you had actually bought the property for.  The papers showed that you were buying for $450,000 rather than the $388,000; and those papers also falsely showed that a deposit of $45,000 had been paid.  An initial attempt was made to prepare a funding proposal document seeking $360,000  as mortgage finance, which was in fact the entire purchase price more or less. That transaction would have proceeded but the fraud was uncovered before settlement.     It is clear that you worked with the leaders of the fraudulent scheme in your efforts to defraud the Bank on this occasion.

[18]     When you were initially approached you did not appear to think that you were doing anything wrong and you were not immediately frank with the Police. Within a relatively short time you accepted wrongdoing and you have since pleaded guilty, you have expressed remorse and you have assisted the Police.  I will refer to this later.

[19]     The  financial  institutions  fortunately  have  not  lost  anything  because  the property market has been buoyant, the Banks were not obliged to go to mortgagee sale.   Indeed, I am informed, you have sold all the properties and the Banks have been repaid.

[20]     I have been anxious to ensure that there have been no substantial differences on the critical factual matters between your position and the Crown’s position.  I am satisfied that there are not.  It is accepted that your offending was deliberate and for personal gain.   It is accepted that your involvement was integral, and the scheme could not have proceeded without you in relation to these specific transactions.  You knew that the Banks believed that the equity in the particular transactions was what was inferentially shown on the second agreements, when in fact there was none.

Sentencing purposes and perameters

[21]     The key element of your wrongdoing has been the deception of financial institutions.  You, in conjunction with others, have fraudulently misled them and as a

consequence of that deceit the  Banks  have been  persuaded  to  provide  financial benefits to the Trust.

[22]     Conspiracy to defraud carries a maximum sentence of 5 years and money laundering a maximum sentence of 7 years.  It was stated in R v Varjan (CA 97/03,

20 June 2003, Gault P) at para [22] in relation to fraud offences, in an extract that both counsel have referred to:

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.

Mr Hammond relies on the next paragraph also, para [23]:

It is in the assessment of culpability that comparison with other cases is to be undertaken.  Matters of mitigation such as reparation, co-operation with the investigators, plea, remorse and personal circumstances necessarily must be assessed in each particular case.

And the Crown relies on para [25]:

The authorities clearly indicate that in cases of major defalcations, misappropriations,  schemes  dishonestly  to  obtain  money  or  property  or where recidivism indicates the need to protect the community, imprisonment is appropriate.

Sections 7 and 8 of the Sentencing Act 2002 set out the purposes of sentencing, s 9 refers to aggravating and mitigating factors   and I will refer to these shortly in a general way.

[23]     In R v Taueki [2005] 3 NZLR 372 (CA) the Court of Appeal stated the approach to sentencing at pages 376-377 in para [8] as follows:

… The modern approach to sentencing uses as a reference point a starting point  taking  into  account  aggravating  and  mitigating  features  of  the offending, but excluding mitigating and aggravating features relating to the offender.   Put another way, a starting point “is the  sentence  considered appropriate for the particular offending (the combination of features) for an adult offender after a defended trial”: R v Mako [2000] 2 NZLR 170 at [34].

Submissions

[24]     The   Crown   submits   that   a   starting   point   of   18   months   to   2 years imprisonment is warranted, and in the circumstances a final sentence of 9 – 18 months imprisonment is appropriate.  Your defence counsel, Mr Hammond has, on the other hand, submitted that imprisonment is not appropriate and that community work is the appropriate sentence with a final warning.  If a period of imprisonment is imposed he asks that leave to apply for home detention be recorded.

Discussion

[25]     It is first necessary to reach a starting point.  In doing so I will consider the factors referred to in ss 7 and 8 of the Sentencing Act, and also aggravating and mitigating factors set out in s 9 of that Act, although I do not propose going through these on a listed basis.

[26]     An offender is to be held accountable for harm done to the victim in the community.  That is what s 7 requires the Court to take into account, and the Court must also denounce conduct  when  it  is  appropriate to  do  so.    The  Court  must consider the need to deter offenders or other persons from committing the same or similar offences.

[27]     In considering the matters, I note that there is not a particular victim in this case, in the sense of a party that has suffered identifiable loss.

[28]     However, I also note that this must be balanced against the need to denounce and deter organised fraud.  Any sort of organised scheme of deception damages our society, for the reasons that I have already mentioned.  Persons who commit fraud often believe that they will not cause anyone loss, and that all will be well in the end. This may well have been the belief of the perpetrators of these frauds and of you. But when there is no loss, as is the case here, and there is fraud involved, that is the result of good luck.  Plenty of organised frauds like this have left real victims and real losses.  There is a need to denounce this sort of action.  There is a need to deter persons from attempting frauds in the hope that if they do get caught, and no one has

suffered any loss, that they will be treated leniently by the Courts.  While taking into the account the lack of actual losses in assessing overall culpability, the Courts must be careful not to place too much weight on this fortuitous event.  Fraudulent schemes of this type are no less tolerable, simply because by good fortune there happened to be no losers.

[29]     Section 8 sets out a number of principles.   Those of relevance include the gravity  of  the  offending  in  the  particular  case  including  the  culpability  of  the offender.  Here the offences, while grave, are not of the highest degree of culpability. This is because you were certainly not one of the originators or organisers of the fraudulent scheme.  You were brought into it, and your role was well below that of the highest level, although above that of the lowest level.  Reference has been made to the case of R v Sealey (HC Hamilton, CRI224405, 17 June 2005, Keane J).  I do not consider the culpability of that offender, who was involved in only one transaction, which affected him particularly, as being as serious as your involvement.

[30]     Equally, however, your culpability is not as serious as those of many of the defendants in the cases that have been cited by the Crown.  You were not a leader and  I do  not  categorise  you  as  a  significant  lieutenant.    But  nevertheless  your involvement was substantial, and if we have to categorise culpability I would say your culpability is in the moderate level.

[31]     Turning  to  the  aggravating  and  mitigating factors  set  out  in  s 9,  I  have already noted that there has been no actual loss and I note the Crown’s submission that, in any event, in terms of aggravating and mitigating factors that simply signals the absence of an aggravating factor.  I also record the absence of any aggravating factor arising from abuse of a position of trust or authority.

[32]     But I do note that there was a level of premeditation involved.   Now, of course, premeditation is always a feature of a conspiracy charge because it involves people planning something together.  However, here your involvement extended to

14 transactions, and in relation to the 8 transactions that took place in New Zealand, you played a significant role.  You signed documents and on at least one occasion you liased directly with the Bank.   You may not necessarily have organised the

transactions but your role was central to them.   In respect of one transaction, Khandallah, you did organise it.  So I treat your involvement as significant.

[33]     Turning to mitigating factors relating to the offending (this is as distinct from you as the offender) I record, again, that you were not a leader or organiser, you were brought into this by your father and there was no actual loss.

[34]     I also note provision in s 8 requiring a Court to impose the least restrictive outcome that is appropriate in the circumstances.

[35]     Having noted those general features relating to the offending I want to refer briefly to some cases.  These are cases all presented to me by the Crown and which your defence counsel has accepted have relevance.

[36]     In Cole v Police [2001] 2 NZLR 139 the Full Court held that where there was sophisticated property offending over a long period involving actual losses of at least

$450,000, the appropriate starting point was between 4 – 5 years imprisonment.

[37]     In  R  v  Varjan  CA  97/03  Judgment  20 June 2003,  where  there  was  a significant breach of trust and losses of $546,000, and where the defendant had a subsidiary role in the fraud, it was held that a starting point of in the vicinity of three years was appropriate.

[38]     In R v Nandan CA 136/98, Judgment 2 September 1998, a case which had some similarities to the present case, the position of the Court was interpreted by the Court of Appeal in R v Varjan (para [27]) as involving a starting point of 18 months.

[39]     I also note R v Sealey, the case I have already referred to, where the sentence imposed was 300 hours community work for a defendant connected to the same operation as that which involved you.

[40]     In fixing the starting point it is necessary to emphasise the fact that this was a sophisticated fraudulent scheme.  At the time of your apprehension you had entered into a new and more active role, which would have presumably continued but for your apprehension.   You were motivated by a desire to  gain financial benefits,

certainly in relation to the Khandallah transaction.   In relation to the other transactions, the trust transactions, I am prepared to accept, and there is no evidence to the contrary, that you did not expect to make immediate financial gains through the trust and that you had in mind generally benefiting your parents.  However, you were a discretionary beneficiary.  Insofar as the trust gained wealth you individually benefited and ultimately over the years you could expect to benefit directly from the growth of wealth for your parents.

[41]     It is necessary for the Court to denounce fraudulent actions of a systematic and predetermined type involving large sums of money.   It is necessary for the sentence to constitute a deterrence to others.   Taking this into account, and considering the mitigating factors I have referred to, I fix the starting point at 2 years imprisonment.

[42]     I now turn to the matters that personal to you, and the matters that I will mention  are  all  matters  in  mitigation.     I  have  already,  in  considering  the circumstances of the offending, referred to the way in which your father brought you into the scheme.  On a level personal to you I regard this as a mitigating factor and it is appropriate to make some allowance for a situation where a father persuades a son in an incremental way to get involved in a fraudulent scheme.   However, I must temper  this  somewhat  in  light  of  the  fact  that  you  are  a  mature  person  with substantial experience in business; more so than your father had.   I also accept entirely that there has been a family split and in a general sense a collapse of the larger family unit as a result of these events, and that is a source of grief.

[43]     I  then  acknowledge  your  good  character.     Your  driving  conviction  is irrelevant.  I treat you as a first offender. You are a person who led a worthwhile and blameless life until you commenced this offending.   The references that you have produced show that you are held in high regard by friends and people with whom you have had an association.  You have put back into your community by getting involved in church activities and helping people on a personal level.   This good character is a mitigating factor of some substance.

[44]     I also accept that you are genuinely remorseful.   Genuine remorse and the understanding of culpability are not to be confused with regret at discovery and disgrace.   Here, however, I am prepared to accept that the emotion that you have arising from your present situation is genuine.  While I suspect you find it hard to come to terms with the fact that you have acted dishonestly, I do believe that you now accept the wrongness of the scheme, and what you did.   Undoubtedly you bitterly regret it.

[45]     Then  there  is  the  guilty plea  and  your  substantial  co-operation  with  the Police, which are very substantial mitigating factors.  The acknowledgement of guilt came at a relatively early stage, as did the co-operation.  The consequence has been, as I understand it, that the Police task has been made easier in some respects, and certainly in terms of a guilty plea a great deal of public expense has been saved.  You are entitled to substantial mitigation credit in this regard.

[46]     Generally I note that the pre-sentence report is sympathetic to you.  It states that you present as being motivated to prevent further offending.  It notes that you have lost a good job.   It notes the family circumstances, in particular your own family, your wife and two children and the fact that you are unlikely to offend again.

[47]     Section 16(1) of the Sentencing Act 2002 provides that when I consider the question of whether a sentence of imprisonment should be imposed I should have regard to the desirability of keeping offenders in the community, as far as that is practicable and consonant with the safety of the community.  I also note that there is no  evidence  that  you  received  any  direct  benefit  from  any  of  the  transactions, although I have already commented on how your family generally was going to benefit.

Conclusion

[48]     I  am  conscious  of  the  fact  that  the  pre-sentence  report  recommends  a sentence of community work, and that there are substantial mitigating factors in this case.   However, for the reasons that I have already mentioned in relation to the starting point sentence of two years, it is necessary for the Court to denounce this

sort of offending and to deter others from committing it.  The offending was planned, it was relatively sophisticated, it was repeated on a number of occasions and was going to carry on  if  it  had  not  been  stopped,  and  the  motivation  was  personal financial gain.  The amount of money involved was significant.  Your involvement over 14 transactions was escalating and in the latter stages was significant.  These factors mean that a non-custodial sentence is inappropriate.  However, a substantial discount is appropriate for the mitigating factors that I have mentioned, in particular the good character that you have displayed to date and the remorse that you have shown.   The good character, the remorse, the factors personal to you within themselves warrant a reduction of the sentence to 20 months.

[49]     In addition to that reduction, a very substantial reduction is appropriate for the early guilty plea.   Indeed, more than the usual is appropriate under this head, because not only was there a guilty plea provided promptly, but there has also been active and helpful co-operation with the Police.

[50]     In  all  the  circumstances  I  consider  the  appropriate  penalty  for  all  the offending to be the imposition of a period of imprisonment for a period of 12 months.   I impose that sentence on the  conspiracy charge.    I do  not  impose  a sentence on the money laundering charges in respect of which you are convicted and discharged.

Home detention

[51]     I now turn to the question of whether it is appropriate to grant you home detention.     Because  the  offences  were  committed  prior   to   7 July 2004   the presumption in favour of home detention applies.

[52]     I am  of  the  view  that  leave  should  be  given  to  you  to  apply for  home detention.  Indeed, I would have been of that view even under the current statutory regime where the Court has to be satisfied in relation to various matters.  The matters that I have mentioned indicate that the nature and seriousness of the offending and your circumstances and background would make it appropriate for you to be granted that leave to apply.  Leave to apply is granted.

[53]     However,   there   are   no   special   circumstances   why   the   sentence   of imprisonment should not commence immediately, and I note that no submissions have been made in that regard.  The grounds set out in s 100(1) of the Sentencing Act 2002 provide for that order to be made when there are humanitarian grounds or exceptional circumstances, and there are no particular humanitarian grounds that apply here.  There are no exceptional circumstances in the sense of work or family demands that require such a deferment.  Accordingly, the sentence will commence immediately in the usual way.

…………………………………..
Asher J