Shirtcliff v The Queen
[2005] NZCA 255
•28 October 2005
IN THE COURT OF APPEAL OF NEW ZEALAND
CA163/05
THE QUEEN
v
GERALD MORTON SHIRTCLIFF
Hearing:19 July 2005
Court:Glazebrook, Randerson and Goddard JJ
Counsel:J R Rapley for Appellant
D G Johnstone for CrownJudgment:28 October 2005
| JUDGMENT OF THE COURT |
THE APPEAL AGAINST SENTENCE IS DISMISSED.
____________________________________________________________________
REASONS
(Given by Goddard J)
Introduction
The appellant was convicted by a jury on seven counts of using a document capable of being used to obtain a pecuniary advantage with intent to defraud (s 229A(b) of the Crimes Act 1961). The documents in question were Inland Revenue Goods and Services Tax (GST) Returns covering the period 1 April 1997 to 31 May 1998. The appellant was sentenced to an effective sentence of one year and eight months imprisonment on all counts from a starting of two and a half years imprisonment. He was granted leave to apply for home detention.
Background facts
The charges arose from the sale of a business in Christchurch operated under the name Langford Services Limited. The appellant was the owner and manager of the business which serviced motor vehicles. It had two central streams of income, one through a franchise from Nationwide Guarantee Corporation (NGC) and the other from a sole agency with Daewoo Motors.
In 1997 the appellant was seeking to sell the business. The complainant, Mr Zust, expressed interest in purchasing it and the appellant sent him copies of the GST returns for the business for the two monthly periods of April and May 1997, June and July 1997 and August and September 1997. The copies of the returns sent to Mr Zust were not however the same as the copies of the returns filed with IRD for those periods. Instead the appellant had recreated the returns using the actual sales figures but omitting to refer to a contra-system on which the figures were based. The documents were not therefore representative of the direct cashflow of the business as they failed to disclose the contra system in place. This omission was deliberate on the part of the appellant and its effect was to overstate the income of the business by up to 10% whilst understating the proper expenses of the business by approximately 13%. The appellant also sent Mr Zust a sales summary document showing an apparently consistent turnover for the same period.
On the basis of the figures in the three GST returns and in the sales summary Mr Zust decided to purchase the business and signed an agreement in the sum of $296,500.00. After the agreement was signed, Mr Zust’s accountant performed a due diligence on the business and asked for copies of the GST returns. The accountant was provided with the same ‘doctored’ returns that had earlier been sent to Mr Zust, showing the same apparently healthy cashflow returns. The accountant then followed up with a faxed request to the appellant enquiring about some discrepancies between GST inclusive sales in the sale documents and “as returned to the IRD”. He received no response from the appellant.
In the event the sale and purchase did not proceed at that time because NGC did not approve Mr Zust as the new franchisee. However, during 1998 the appellant again got in touch with Mr Zust about the possibility of a sale of the business to him. In furtherance he supplied four further GST returns relating to the period 1 October 1997 to 31 May 1998 that were similarly ‘doctored’ and represented a healthy business in terms of cashflow. In addition, a further apparently consistent turnover warranty for the period was supplied. The parties entered into a new agreement for the sale and purchase of the business in the sum of $296,500.00. On 10 August 1998 the sale was completed and Mr Zust operated the business using the contra-system but unaware that it was not reflected in the GST returns he had been given. Unfortunately, not long after Mr Zust took over the business, it encountered difficulties that had not been envisaged. Daewoo became unable to sell cars directly to the public and NGC got into financial difficulties and was taken over by a new company. Ultimately Mr Zust sold the business some 15 months later for approximately $29,000.00. By then he had inadvertently discovered the discrepancies in the GST returns filed with IRD on behalf of the company and the purported copies of those returns given to him by the appellant. These revealed that instead of healthy cash surpluses every two months, the GST returns as filed disclosed a business with “marginal cashflow”.
The sentencing judgment
Following conviction by the jury on all charges, the trial Judge, Judge Abbott, referred to the difficulty in assessing the correct figure for reparation given the effective collapse of the business for unrelated reasons and decided that it was pointless to order reparation, particularly in the absence of any further enquiry into the appellant’s financial situation.
The Judge referred to the degree of fraud actually proved, in terms of overstatement of the actual income of the business (by between 5 - 10%) and corresponding understatement of the expenses of the business (by approximately 13%). He took the view that to approach the sentencing exercise simply on the basis of endeavouring to assess financial fallout by means of accounting analysis many years after the event was “in many respects a diversion or a distraction from what should be the focus of the exercise, which is the assessment of the criminality of [the appellant’s] conduct”. In respect of that the Judge said:
[40] In my view the criminality of your conduct in respect of Mr Zust in late 1997 and mid 1998 was very significant. The effect of the verdicts of the jury is that they were satisfied that you dishonestly provided seven doctored GST returns to Mr Zust, i.e. on the basis that they were copies of the returns as filed with the Inland Revenue Department.
[41] Furthermore, an analysis of the returns, especially on a set by set basis, shows that they were prepared with some care, in particular in respect of issues of date and matters of that nature.
[42] Put very shortly, your conduct in sending Mr Zust the seven false GST returns, i.e. on the pretence that they were copies of the returns as filed with the Inland Revenue Department, was grossly dishonest. Furthermore, the only reasonable inference which can be drawn from that course of conduct is that on both occasions you intended that Mr Zust would rely on the returns, on the basis that they were copies of the returns as filed.
…
[45] Furthermore, and although it must again be acknowledged that [whilst] precise cause or causes of the subsequent failure of the business can only be a matter of conjecture, the fact remains that, in reliance on the seven fraudulent GST returns, Mr Zust in effect sunk all his available capital into a business which in due course was almost worthless.
[46] As I said earlier, if Mr Zust had been given the full picture, i.e. if he had been given copies of the returns as filed with the Inland Revenue Department, my assessment is that he would not have purchased the business at all, or that, if he had done so, it would only have been after taking professional advice and following due reflection.
In determining an appropriate sentence to reflect the appellant’s criminality, the Judge noted that the general approach in sentencing for commercial fraud favours imprisonment although individual cases require to be assessed according to their own unique facts. He noted that the appellant’s case was different from the “usual type of business turnover misrepresentation case”, observing that no credit could be given for reparation paid or for acknowledgement of criminality through the entry of guilty pleas. He found the following to be the relevant sentencing principle in the appellant’s case:
[51] … the importance of ensuring total honesty and probity in commercial dealings is always a relevant factor when sentencing for such offending. If people who are minded to be involved in commercial transactions cannot trust the information which they are given or the veracity of statements which are made to them, the whole structure of the commercial life of our community would be jeopardised.
Against that sentencing principle, Judge Abbott took into account the appellant’s age, his lack of previous convictions, his health issues and his personal circumstances, as well as the fact that the appellant had spent two months in custody in Australia from where he had been extradited back to New Zealand.
Taking into account that two separate episodes of dishonesty were involved in the appellant’s dealings with Mr Zust and with his accountant and “in circumstances where it was clear to [him] that what was required were the GST returns as filed”, the Judge identified a starting point of two and a half years imprisonment as appropriate. From that he deducted four months to off-set the period spent in custody in Australia and a further six months to reflect the appellant’s personal circumstances and attributes. On the basis of those personal factors, leave to apply for home detention was granted.
The appeal
The appeal against sentence was brought on the ground that it was manifestly excessive for a number of reasons. First, Mr Rapley argued that the starting point of 20 months imprisonment was too high, whilst accepting that a sentence of imprisonment was not wrong in principle and also accepting the general need to deter fraud in commerce. Mr Rapley’s argument was however that the starting point adopted had not been correctly balanced against the criteria in ss 8(d) and 16 of the Sentencing Act 2000.
Second, Mr Rapley submitted that the Judge had erred in misunderstanding the significance and relevance of the forensic accountants’ evidence, by finding that their evidence was a diversion or distraction from the true focus of the sentencing exercise, namely the assessment of the appellant’s criminality. Mr Rapley suggested the Judge’s error in this regard derived from his having overlooked that the business as sold had a value and also the fact that the appellant had recreated the GST forms by using actual figures and not made up figures. He emphasised that the fraud involved was confined to the deliberate omission by the appellant to tell Mr Zust that the GST returns supplied did not represent direct cashflow and that there was a contra system in place.
Third, Mr Rapley submitted that Judge Abbott had erred in rejecting as relevant a signed statement from a Mr March who had been a prospective purchaser of the business and was aware of all the facts and prepared to buy the business for approximately the same amount for which it was eventually sold to Mr Zust. He supplied a copy of Mr March’s signed statement.
Fourth, Mr Rapley submitted that the lengthy and highly emotional victim impact statements supplied by Mr and Mrs Zust should have been rejected by Judge Abbott, particularly as the Judge was rejecting the forensic accountants’ evidence as a diversion or distraction from the true assessment of the appellant’s criminality.
Fifth, Mr Rapley submitted that the proper starting point should have been a sentence of 15 - 20 months imprisonment, before taking into account the mitigating factors for which he submitted insufficient credit was given.
Discussion
There is no issue that a sentence of imprisonment was the only appropriate response to the appellant’s fraudulent conduct, as Mr Rapley accepted. His true culpability lay in the fact that his deceitful conduct caused Mr and Mrs Zust to invest in a business in which they may not have invested, had they been in a position to make a properly informed decision. That deceitful conduct deprived them of their ability to make such a decision. The impossible task of subsequently quantifying the financial loss actually incurred as the result of the appellant’s deception does not detract from that true culpability. Nor does the fact that the company contemporaneously suffered a major loss through unforeseen circumstances have relevance. Nor is it relevant that another prospective purchaser, who was aware of the contra situation, says that he was prepared to purchase the business, albeit at a lower price.
The pivotal factor is that, in response to a deliberate deception, Mr and Mrs Zust, on a mistaken belief, invested their money in a business that ultimately proved worthless. The accuracy of the figures included in the ‘doctored’ GST returns does not mitigate the deliberate and misleading nature of the omissions in those returns and Judge Abbott’s approach to sentencing, not on the basis of a direct loss of $270,000.00 to Mr and Mrs Zust, but rather on the weight to be attributed to the fraudulent nature of the appellant’s conduct, was correct.
As this Court outlined in R v Varjan CA97/03 26 June 2003 at 21 - 23, a case by case approach to sentencing is appropriate for offending of this type:
It was said in Rose that there was no established benchmark. That is still the position. The circumstances of, and culpability in, offences of dishonesty vary widely. They must be assessed in light of the guidance to be found in previous decisions. Helpful in this respect are Rose and Cole v Police [2001] 2 NZLR 139.
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.
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 investigators, plea, remorse and personal circumstances necessarily must be assessed in each particular case.
Judge Abbott had the advantage of presiding over the trial and thus was in the best position to assess true culpability. The starting point of two and a half years adopted by him was open and there is no indication in his sentencing remarks or in the starting point and final sentence imposed that the Judge placed undue emphasis on any extraneous matter or took undue account of the emotional nature of the victim impact statements. To the contrary he expressly and appropriately disavowed any particular reliance on those statements. Given the repeated and serious nature of the fraud and the fact that in fraud cases the good character of the perpetrator is often the very factor that allows the fraud to be perpetrated the Judge gave what might be regarded as a very generous allowance for the appellant’s personal circumstances, his otherwise exemplary record and the time he spent in custody in Australia.
Conclusion
The appeal against sentence is dismissed.
Solicitors:
Cooper Rapley, Palmerston North for Appellant
Crown Law Office, Wellington
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