R v Palmer
[2004] NZCA 41
•31 March 2004
IN THE COURT OF APPEAL OF NEW ZEALAND
CA332/03
THE QUEEN
v
DAMIAN JOHN PALMER
Hearing:15 March 2004
Coram:Anderson P
Laurenson J
Paterson JAppearances: M J Ruffin & G A Andree-Wiltens for Crown
J R Billington QC & T J Peters for Respondent
Judgment:31 March 2004
JUDGMENT OF THE COURT DELIVERED BY LAURENSON J
INTRODUCTION
[1] The Solicitor-General seeks leave to appeal against sentences imposed on the respondent in respect of two convictions under s105A of the Crimes Act 1961 which provides as follows:
105A. Corrupt use of official information – Every official is liable to imprisonment for a term of not exceeding 7 years who, whether within New Zealand or elsewhere, corruptly uses or discloses any information, acquired by him in his official capacity, to obtain, directly or indirectly, and advantage or a pecuniary gain for himself or any other person.
[2] Following a two-week trial before a Judge alone in the District Court at Auckland, the respondent was sentenced to 18 months imprisonment. Leave was granted to apply for home detention and the sentence deferred to enable an application to be considered. The application was subsequently granted by the Parole Board. The respondent’s release date is 31 May 2004.
[3] The sequence of events leading up to the present appeal is of some significance. It was:
a)Date of offending 13 April 2000.
b)Trial 12 to 27 May 2003.
c)Decision 3 June 2003.
d)Sentence imposed 25 July 2003.
e)Solicitor-General’s appeal filed 22 August 2003.
f)Appeal heard 15 March 2003.
Factual background
[4](i) The respondent, Mr Palmer, is now 44 years of age. He is married with four children now aged between 7 and 13 years.
(ii)He commenced work with the Government Superannuation Fund (“GSF”) in August 1997 as a fixed interest dealer. The GSF by reason of the large amount of funds entrusted to it is capable of exerting considerable influence on security markets.
(iii)The respondent was a senior member of a small team responsible for the purchase and sale of fixed securities on behalf of GSF.
[5] Given the nature and sensitivity of its functions, GSF and its employees were subject to the Ministry of Commerce Code of Conduct which, amongst other things, directed staff to avoid conflicts of interest, display the utmost integrity and avoid improper use of official information. Commencing in February 1999, GSF began consultations with its staff directed to formulating a Government Super Fund Code of Conduct which specifically prohibited employees trading in futures on their own behalf. The Judge found that although the Code may not have been finally completed by 13 August 2000, it was well established that staff were not entitled to deal in futures for their own benefit. But, as the Judge found, the respondent did deal in futures and in fact made a large sum of money when he exploited information he acquired in his official capacity.
[6] In early April 2000, the respondent created a Trading Trust, the sole beneficiaries of which were his Family Trust, effectively himself and his family. The trading in question was done through a limited company also formed at that time. The sole director and shareholder was a friend of the respondent, a Mr Christopher Ferris, himself a futures dealer. Later, Mr Ferris transferred his interest in the company to the respondent but this transfer was not recorded in the Companies Office. The net result was that dealings by and on behalf of the respondent were effectively disguised.
[7] On 11 April 2000 $384,000 was directed to the trading companies credit with a futures dealer arranged by Mr Ferris. Much of this sum had become available following the sale of the respondent’s home. The Judge found that these matters provided convincing evidence that by this date the respondent and Mr Ferris had begun to engage in some substantial trading in futures, and at a point just prior to a Government Stock Tender on 13 April 2000.
[8] The appellant in its submission summarised the events which occurred thereafter as follows:
a)The Reserve Bank was offering by tender $200 million of bonds. The bonds being sold were 100 million New Zealand Government Stock with an expiry date on 15/04/03 and 100 million New Zealand Government Stock sold with an expiry date ending on 15 November 2011. Tenders had to be submitted by 11:30am on 13 April, and the results were to be advised at 1:00pm. The GSF’s strategy, as recorded in the Minutes of the weekly investment meeting on 10 April and Mr Palmer’s memorandum dated 13 April 2000, was to aggressively bid for all of the bonds offered; bid the New Zealand Government Stock with the expiry date of 15/11/2011 aggressively after the results are released; and as we bid the market down simultaneously sell 200 million New Zealand Government Stock with an expiry date ending 15/07/2009. As well, the GSF intended to sell futures to hedge this position.
b)On 13 April 2000, Mr Palmer was transacting the sale and purchase of bonds while his colleague, Dean Spicer, was transacting bond futures contracts. Both were operating in the same room.
c)Mr Palmer was aware of the likely futures trading Spicer would be conducting on 13 April 2000.
d)In order to profit from the knowledge that:
· GSF was taking out the tender, (effect of this knowledge on the market would send interest rates lower).
· GSF was going to sell down the 09s (9 year Government Stock) (effect of this knowledge on the market would send interest rates higher).
Mr Palmer placed himself in the market on the other side, bidding a price where he knew that he could benefit.
[Is reverse position for futures.]
e)Basically this was achieved by buying 200 futures contacts to get set up for when the tender results were announced and interest rates were sent lower which created the profits on the 200 contracts. Then selling 500 futures contracts to, first, take their profits in the 200 contracts to preposition themselves before the effect of the sale of 200,000,000 Government Stock with an expiry date ending 15/07/2009 reached the market and interest rates rose. Finally 300 contacts were bought to close out the position and realise the profit.
[9] It is important to emphasise that the respondent had been fully involved in the planning of the GSF strategy which he later exploited for his and Mr Ferris’s benefit.
[10] The benefit obtained by them was substantial, namely a profit of $269,896.20 which, following an earlier agreement between them, was divided 80% to the respondent and 20% to Mr Ferris.
[11] The nature of their intervention in the market was such that it became apparent to another broker, and the New Zealand Futures Exchange, that something was “out of line”. An investigation was commenced which ultimately led to the respondent being charged under s105A, and Mr Ferris as a party.
[12] Both were subsequently found guilty. The respondent was later sentenced to 18 months imprisonment, and Mr Ferris to 12 months imprisonment. Leave was granted in each case to apply for home detention which was later granted. The respondent was ordered to pay reparation of $50,000, and Mr Ferris $15,000.
[13] The Solicitor-General sought leave to appeal against both sentences pursuant to s383(2) on the ground that they were manifestly inadequate. It is important to note that by the time the two appeals were due to be heard, Mr Ferris had completed half of his sentence and had accordingly been released. Pursuant to s303(3) of the Crimes Act, because his appeal had not been heard before the date on which he had completed serving his sentence, the appeal lapsed and was deemed to have been dismissed by the court for non-prosecution.
[14] In his conviction decision, the Judge concluded at para [86]:
I am satisfied that Mr Palmer has acquired the information concerning the progress of strategy decisions by the GSF in his official capacity and mis-used it knowing that he was acting wrongfully and by means of telephone calls from the dealers room by cellphone or landline advised Mr Ferris of this special information. By this means the Futures positioning could be confidently taking by Mr Ferris in order to profit both Mr Palmer and Mr Ferris. Both charges against Mr Palmer are proved and he is therefore found guilty of Counts 1 and 2.
[15] In his sentencing decision the Judge said at para [5]:
This whole scam, which is what it was, was well planned. It was sophisticated and there was an attempt to hide behind a limited liability company and a Trust, neither of which gave any hint of a connection of the trading with Mr Palmer. Central, of course, to this sentencing today is Mr Palmer’s position as a government organisation official. Insider trading is severely proscribed today even in the civil context, public companies or other companies, and we know from today, in “The Herald”, that shortly that too will be criminal offence. Insider trading by a government official however is a serious offence. It has a maximum penalty of seven years imprisonment and that criminal offence has been on our books since 1982.
[16] In relation to the requirements of the Sentencing Act 2002, the Judge noted that the key purpose of sentencing in this case was deterrence and denunciation.
[17] So far as the principles referred to in s8 are concerned, the Judge said at para [7]:
Under s8 I have got to have regard to the gravity of the offending and I accept that this does not involve bribery or clear theft or dishonesty or anything of that nature. Section 105A is aimed at preventing government officials making use of information not available to the public in order to benefit themselves. I agree that it is not necessarily dishonest in the sense of a bribe or theft but it is a deliberate act knowing that it is not authorised. In this case however, despite the urgings of Mr Billington and indeed Mr Earwaker, I do not accept that this was merely a contractual breach or something in the nature of civil – if we can use that term – insider trading. Planning that was entered into here, the scale of the offending, and the attempts to conceal, plainly, in my view, indicate that there was knowledge and dishonesty behind your offending. I say that despite the many references that have been produced as to your past integrity. I believe that I could have put more emphasis on your claim that you had no knowledge that this was an offence if there had been a plea of guilty. But there was not. You have put the whole matter to proof. It must be remembered that ignorance of the law is not an excuse and this offence has been on our criminal statute books since 1982. With regard to s8 also, I agree that this is not near the most serious cases of its kind although is more serious than those which have been reported to date under s105.
[18] After considering a number of sentencing decisions relating in the main to sentences imposed for breaches of what was s229A and s105A, the Judge, having considered the aggravating and mitigating factors involved, concluded that the sentences previously referred to were appropriate. Unfortunately, he did not specify a starting point before reading that conclusion.
The Solicitor-General’s appeal
[19] The ground as stated was that the sentence imposed was manifestly inadequate and wrong in principle. More particularly, the net sentence of 18 months necessarily implied that an inadequate starting point had been adopted. It was submitted in this regard that a starting point of four years was established by precedent and was appropriate to this case.
[20] The following aggravating factors were identified, namely:
a)The extent of the loss.
b)Abuse of position of trust.
c)Remuneration.
d)The undermining of public confidence in the financial markets.
[21] The sole mitigating factor was the absence of a previous criminal record and, impliedly the respondent’s otherwise worthwhile position in the community and his care and attention to his family.
[22] Reference was made to a large number of other sentencing decisions but in the final analysis, reliance was placed on the decision of R v Nua [2003] 3 NZLR 483, in which this Court went some way towards reconciling earlier decisions relating to both fraud and s105A. In Nua a senior customs officer entered into an arrangement with an importer of used motor vehicles pursuant to which over a 15 month period the appellant allowed the importation of 154 used motor vehicles without odometer inspections or GST. The result was the loss of $293,000 in unpaid GST and the release of those unchecked vehicles into New Zealand. In return the appellant received benefits totalling between $150,000 and $200,000. Aggravating features identified were the lengthy period of offending, its complex nature, magnitude of the bribes, gross breach of trust, damage to the Customs Service and the lack of any prospect of reparation. Mitigating features were an early confession, co-operation with the authorities and an early plea of guilty.
[23] When discussing the appeal against sentence, this Court said at para [23]:
A substantial reduction was plainly appropriate for matters in mitigation. Equally, however, a deterrent sentence in excess of five years could have been justified as the starting point. While a net sentence of four years’ imprisonment was at the upper end of the range we do not regard it as manifestly excessive.”
[24] The effective sentence of 4 years imprisonment was upheld on appeal.
[25] In Nua the Court was required to consider two lines of sentencing precedent, namely fraud s229A and s105A. In relation to the latter, reference was made to R v Vergis (Court of Appeal, CA165/92, 17 July 1992) and R v Ram (Court of Appeal, CA23/94, 16 March 1994), where sentences of 2 years and 18 months respectively were imposed. Both cases related to corrupt activities by immigration officials.
[26] In Ram this Court noted at p4:
We state, however that further examples of this kind of offending may well require for determinant purposes a reconsideration of the sentencing level endured by Vergis.
[27] The same warning was given by the Court in R v Malyon (Court of Appeal, CA435/97, 18 December 1997) in which a sentence of 2 years imprisonment cumulative on other terms of imprisonment, was imposed on a police officer found guilty of accepting bribes.
[28] The Court of Appeal went on to consider a number of further decisions most of which have been referred to us in this case. At para 19, it noted:
The majority of these cases have centred on immigration or importation procedures, perhaps reflecting a growing influence from those less used to the corruption-free environment which New Zealanders have traditionally enjoyed. The time would now seem to have arrived for unmistakable deterrence.
[29] At para. 23, the Court of Appeal concluded:
A substantial reduction was plainly appropriate for matters in mitigation. Equally, however, a deterrent sentence in excess of five years could have been justified as the starting point. While a net sentence of four years’ imprisonment was at the upper end of the range we do not regard it as manifestly excessive.
Submissions for respondent
[30]The respondent submitted as follows:
a)The sentence was within an appropriate range for offending of this kind. Although there is no tariff, as would be expected given the unusual nature of the offence, it could not be said that the sentence of 18 months imprisonment was manifestly inadequate.
b)Although it had been proven and accepted by the trial Judge that the respondent had taken advantage of his knowledge of the GSF strategy to anticipate market trends and trade in futures contracts to his advantage, the respondent’s trading was:
(i)Passive in a sense that sales made still required the existence of an independent buyer and purchases, the existence of an independent seller.
(ii)The trading officer for GSF conducted quite independently the predetermined GSF strategy.
c)These circumstances immediately distinguish the offending from those cases where offenders breach trust by, for example, stealing or misusing trust funds when plainly it is common knowledge that theft by the fraudulent use of documents, false pretences, or however otherwise achieved, is criminal.
d)The offending in this case would best be characterised as “insider trading” which up until now has only attracted civil remedies. Further, in respect of any employer other than the Government there would be no criminal offence committed. This being the case, then whatever may be the appropriate starting point for the sentence, the respondent was entitled to a discount for this peculiar set of circumstances, such circumstances being recognised by the Court of Appeal in R v Walters [1993] 1 NZLR 533.
[31] Walters was a case where the offender had been prosecuted in relation to breaches of the Fisheries Act 1983. Charges had been laid not only under that Act but also under s257 of the Crimes Act 1961, namely conspiring to obtain paua fraudulently for the purposes of sale in contravention of the Fisheries Act, thereby defrauding the public of an economic benefit while at the same time depleting the paua resource; and with intent to defraud, conspiring to use documents to obtain a benefit by exporting paua, a controlled resource subject to the quota management system under Part IIA of the Fisheries Act, which had been illegally obtained for disposal on the Australasian market.
[32] This Court held, when considering an appeal against sentence:
At the time of committing the offences the Fisheries Act had provided for somewhat limited monetary penalties only and the possibility of a conspiracy charge carrying much more severe penalties might well not have been apparent to the accused or others. It was therefore appropriate to substitute sentences of periodic detention for nine months in each case and to fine four of the accused $100,000 each and the other accused $25,000 (see p 538 line 32, p 538 line 40, p 538 line 45, p 538 line 54).
[33] Counsel for the respondent submitted that in the present case the respondent was entitled to a similar concession because whilst his offending was clearly dishonest it would not have been apparent to him that it would attract a criminal charge.
[34] Further particular mitigating matters raised on behalf of the respondent justifying the maintenance of the sentence imposed in this case were:
a)Unlike in Nua and other cases, the offending occurred only once and within a space of 24 hours.
b)The respondent and his family have already been subjected to severe pressure for a period of nearly four years since the offending occurred.
c)Given the profit actually achieved by GST as a result of its trading strategy, it is difficult to settle on a figure which would be said to be a loss to GSF caused by the respondent.
[35] In summary, it was submitted on behalf of the respondent:
(1)The respondent is a person of established and hitherto good character.
(2)The respondent could not reasonably have expected to believe that his offending would have attracted the sanction of the criminal law.
(3)The respondent has demonstrated himself to be a concerned, contributing member of the community both in relation to his own family and the wider community as is evidenced by the character references.
(4)Whatever the level of sentence is thought to be appropriate it ought to be reduced or reflect the following:
(a) The respondent’s offer to make amend.
(b) The respondent’s responsibility to his family.
(5)The losses that have flowed to the respondent as a result of this offending are based on the breach of employment contract which has by reason of that employment being with the Crown, attracted criminal sanction.
Discussion
[36] Whatever may have been the respondent’s state of knowledge, or otherwise, as to the criminal consequences of what he did, is in our view irrelevant. The offending was patently dishonest. It was premeditated and carefully planned to prevent knowledge of the respondent’s participation in what occurred. Those preparations were made in the knowledge that what was to be done was in contravention of the rules of conduct which applied to the respondent. The purpose of those rules was to prevent insider trading within the particular context of activities carried out by a government official.
[37] Section 105A was first enacted in 1982. The rules of conduct were specifically enacted to ensure compliance with the requirements of this section. The section is a recognition that persons employed in government and other forms of public service are to be held responsible for a higher level of integrity than persons in the private sector. The reason is quite simple, namely to preserve confidence in the administration of public affairs.
[38] The essence of offending under s105 is the corrupt use or disclosure of information acquired in an official capacity to obtain an advantage or pecuniary gain. Whether or not it involves the taking of bribes is not essential. What is material is that corruption in public office, whether by the corrupt use of official information or otherwise, will inevitably bear on the extent to which confidence in the administration of public affairs can be maintained.
[39] Similarly, the fact that the trading conducted on behalf of the respondent was passive in the sense submitted on his behalf is of no moment. The appellant’s participation in the market was clearly a deliberate and positive manoeuvre. It was conducted only because of the knowledge the appellant had obtained in a position of trust and confidence.
[40] There will, of course, be differences in the degree of culpability involved in particular instances of offending and this is apparent from the unfortunately increasing number of cases prosecuted under s105A.
[41] Nua was a case of prolonged corrupt behaviour, resulting in significant identifiable illegal benefits to the offender and, to the extent, it can be distinguished from the present case. It all other respects, we consider that the present case can be included in the same general category of serious offending under s105A. This was a planned, premeditated and sophisticated attempt to corruptly use official information which resulted in a substantial benefit to an intelligent and trusted government official.
[42] Whether or not the offending was done without knowledge of the criminal consequences may be of limited relevance, when the conduct is knowingly corrupt. Walter is not we consider a relevant precedent. In that case there was a realisation that there was an offence which attracted a criminal penalty. What may not have been realised was that there were other more substantial penalties available. In the present case, although perhaps not widely known, s105A has been on the Statute Books for over 20 years.
[43] This Court indicated quite clearly in R v Ram, that offending under s105 may well require for deterrent purposes a reconsideration of the sentencing level evidenced in Vergis. As already noted, that warning was repeated in R v Nua. Whilst those cases related to clearly identifiable cases of bribery we consider the offending in this case was equally insidious in its essential nature.
[44] We accept that the fact that the offending in this case occurred only once over a short period does provide a point of distinction between Ram and Nua. In Nua the offending involved not only the corrupt use of official information but also a prolonged acquiescence by the offender in corrupt behaviour. Whilst the essence of offending is the corrupt use of official information, we consider that the degree of culpability present in Nua must be recognised as being greater than this case. For this reason we have concluded that an appropriate starting point for sentence should have been in the range of 3 to 4 years. Consequently, a net sentence of at least 2½ years imprisonment, would have been appropriate after taking into account both aggravating and mitigating circumstances.
[45] At an early point during the hearing of this appeal, we had formed a preliminary view for a number of reasons, that it would be contrary to the interests of justice to increase the sentence already imposed. These were:
a)By reason of the time limit in s383(3) the appeal against the sentence of the co-offender could not proceed. We agree that the Judge correctly concluded that the culpability of the co-offender was less than the respondent but, had that appeal proceeded, there could be no guarantee that the sentence would not also have been increased. In these circumstances, if only the respondent’s sentence was increased then this could tend to undermine confidence in the administration of justice, which, of course, is the rationale for reducing sentences for unjust disparity.
b)There has been a delay in hearing this appeal, one consequence of which is, that the respondent has now completed the major part of the sentence of home detention. If an appropriate sentence was imposed now it would mean that the respondent would, at a late stage of his existing sentence of home detention, be removed to prison. Thus to order an increase at this stage would also carry with it a distinct element of unfairness.
c)Allied to the second point above is the fact that the respondent’s family has suffered considerable distress over the period after the investigation commenced, so that the perception of unfairness might be amplified by the domestic consequences.
d)Finally, there is the element of moderation with which this Court deals with Solicitor-General appeals.
[46] In relation to these matters, Mr Ruffin for the Crown indicated (and very appropriately in accordance with the role of a Crown Prosecutor) that the Crown appreciated the considerations referred to above but did seek in effect a clear message that the starting point adopted by the Judge and the resulting sentence was manifestly inadequate and wrong in principle, so that there might be guidance to sentencing Courts in future cases. We think it right to do so.
Conclusion
[47] For the reasons which we have referred to, we find that the Crown has discharged the onus of satisfying us that the sentence in this case was both manifestly inadequate and wrong in principle. Furthermore, that the starting point required to produce the net sentence of 1½ years was too low. As stated earlier, we consider that a starting point in this case should have been in the range of 3 to 4 years and that any resulting net sentence should not have been less than 2½ years.
[48] For the reasons also referred to, we find that it would be contrary to the interests of justice in this particular case, to increase the sentence already imposed.
[49] Notwithstanding our consideration in (b) above, we wish to record that there is no criticism to be levelled at the Crown for commencing and continuing this appeal particularly in view of the concession quite properly made by Mr Ruffin.
Result
[50] Leave to appeal is granted but in the result the appeal is dismissed.
Solicitors:
Crown Solicitor, Auckland
O’Regan Arndt Peters & Evans, Wellington
0
0