Smith v R
[2021] NZCA 169
•6 May 2021 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA481/2019 CA482/2019 [2021] NZCA 169 |
| BETWEEN | MICHAEL RICHARD SMITH |
| AND | THE QUEEN |
| Hearing: | 22 March 2021 |
Court: | Miller, Brewer and Dunningham JJ |
Counsel: | M J English and JAS Thompson for Applicant |
Judgment: | 6 May 2021 at 3.00 pm |
JUDGMENT OF THE COURT
The application for an extension of time to appeal is declined.
____________________________________________________________________
REASONS OF THE COURT
(Given by Dunningham J)
Introduction
On 24 July 2015, the applicant, Michael Richard Smith, was sentenced to five years’ imprisonment after being found guilty at a judge-alone trial on 21 charges of theft by a person in a special relationship.[1] On the same day, Mr Smith sought a sentence indication on the balance of the dishonesty offending charges he still faced. A sentence indication of two years’ imprisonment, cumulative on the earlier sentence, was given. Mr Smith accepted the sentence indication, pleaded guilty and was sentenced accordingly.
[1]R v Smith [2015] NZDC 14227.
Mr Smith now seeks to appeal his overall sentence on all charges on the grounds that:
(a)the starting point was too high in respect of both sentences;
(b)there should have been a greater adjustment to reflect totality; and
(c)insufficient discounts were applied for mitigating factors.
Application to extend the time for filing the notice of appeal
The applicant filed an appeal against both conviction and sentence on 20 September 2019, almost four years outside the permitted timeframe and has applied to extend the time for filing the appeal.[2]
[2]Criminal Procedure Act 2011, s 248(2).
Mr Smith relies on an affidavit sworn on 21 May 2020 to support an application to adduce fresh evidence and a bail application, to explain the delay in filing the appeal. In the affidavit he describes the pressures that led to him accepting the sentence indication, saying he felt “overwhelmed, and … caved in under the immense pressures”. He then explains the difficulties he has faced in advancing his conviction appeal from prison, noting in particular that some of the evidence he wished to rely on “simply can’t be obtained from prison”. However, there is no information which, on its face, explains why he could not file his sentence appeal until almost four years after the statutory timeframe for doing so.
That said, in determining applications to extend the time for filing, the touchstone is the interests of justice in the particular case.[3] The factors which are relevant to that issue were summarised in R v Lee as follows:[4]
… factors of relevance to the balancing test include the wider interests of society in the finality of decisions, the strength of the proposed appeal, whether the liberty of the subject is involved, the practical utility of any remedy sought, the extent of the impact on others affected and on the administration of justice, and any prejudice to the Crown.
The decision in Lee also acknowledged that “the strongest factor favouring an extension of time to appeal being granted … must be the strength of the appeal”.[5]
[3]R v Knight [1998] 1 NZLR 583 (CA) at 587.
[4]R v Lee [2006] 3 NZLR 42 (CA) at [99].
[5]At [108].
Counsel for Mr Smith, Mr English, now submits that it is in the interests of justice to grant an extension of time for filing, particularly as all that remains is the sentence appeal.[6] He says, being a sentence appeal only, the finality of the decision is not of such moment, there is no impact on the victims, no impact on the administration of justice and no prejudice to the Crown.
[6]The appeal against conviction was formally abandoned on 23 February 2021.
Given the importance of the merits of the appeal to the decision on leave, we go on to consider them despite the lack of explanation for the delay.
The offending
The first 21 charges[7] relate to the period from 2003 to 2005 when Mr Smith held himself out to be a property investment specialist and accountant and promoted his services in the Rotorua area. He ran public property workshops and seminars with the support of well-known public figures, including John Hawkesby and Martin Hawes. As a result of these promotions, and through other social connections including church, Mr Smith persuaded these people he could help them invest in property purchases or in developing properties they already owned. This is despite the fact Mr Smith is not a qualified accountant, nor a property expert and has no relevant professional qualifications.
[7]We adopt the term “charges” throughout even though most of the charges pre-date the Criminal Procedure Act 2011 and are referred to as “counts” in the documents.
Mr Smith got his clients to pay in advance for services such as renovating and relocating houses and arranging subdivisions of land. However, he did not use the payments he received for the agreed purposes. Instead, he used the money for his own purposes, including personal ventures and funding his own lifestyle with luxury accommodation and expensive vehicles. The victims of that offending were two individuals; Ms McDonald and Mr Ellis, and four couples; Mr and Mrs Heard, Mr and Mrs Walford, Mr and Mrs Fowler, and Mr and Mrs Bunn.
The transaction involving Mr Ellis and the Bunns was the most complex arrangement and caused the greatest loss. It required the Bunns to sell their rural block to Mr Smith, who would then contemporaneously onsell the property to a company incorporated by Mr Ellis for more money. The property would then be subdivided and a two acre lot containing the house and curtilage would be sold back to the Bunns. The arrangement of onsales was intended to create a surplus of just over $300,000 which was to be used to meet the cost of subdivision and property development work. Instead, Mr Smith diverted it for his own purpose. The outcome was that Mr Ellis was left with ownership of the property subject to a substantial mortgage to Westpac, which he was unable to service and which brought him close to bankruptcy. It also left the Bunns without a home or any means by which they could recover it.
Mr Smith was made bankrupt on 7 March 2005. Following bankruptcy, Mr Smith engaged in a number of dishonest transactions against a number of clients.
In 2007 he stole $42,276.62 in IRD family support payments that were due to Karen Conaglen. He had made the application to IRD without her knowledge or approval.
In 2008 he diverted a GST return which was to be paid to a firm of accountants to pay fees Mr Smith owed. Mr Smith cancelled the firm’s authority to have the tax refund paid to it and had it paid to himself. He then received an additional $3,241.92 from the firm, being the balance between the refund it never received and its fee.
In 2010 Mr Smith committed a number of offences. He fraudulently obtained $14,000 from Joanne Southwick purportedly for accountancy work, but instead used the money for his own purposes. He dishonestly signed a Companies Office Consent of Director and Shareholder document for a new company in the name of Adam Lambert, when Mr Lambert had instructed him he did not wish to incorporate a company. He was also engaged by Karl Dornan to advise him on tax-related matters. Mr Dornan suffered penalty fees of $7,000 for failing to file the tax returns which he understood Mr Smith would file for him. Mr Smith also advised Mr Dornan to place his house in a shelf company of which Mr Smith was a director and then proposed other schemes by which the house would be sold to Mr Smith cheaply before being repurchased by a trust. When Mr Dornan refused to go through with any of these proposals, Mr Smith placed a caveat over the property. Mr Dornan incurred costs in having the caveat removed. In respect of other clients, Tina Eden and Geoffrey Mauroa, Mr Smith dishonestly collected $6,781 from IRD and retained it for himself. He also dishonestly applied to the Companies Office for a two per cent stake holding in a company owned by Ms Eden and Mr Mauroa.
In 2011 he charged a client, Frian Wadia, for work registering a company. When ordered by the Disputes Tribunal to pay her $264, he did not do so. She also discovered he had not paid for registration of her company and she had to pay that sum again. In the same year Mr Smith also failed to pay wages to two of his employees. When Price Waterhouse Cooper was appointed as liquidators of one of Mr Smith’s companies in November 2012, he deliberately destroyed documents he was required to provide to the liquidators.
Mr Smith was arrested on these charges on 22 November 2012.
He subsequently incorporated two new companies. He supplied false information to New Zealand Media and Entertainment to obtain a credit account with them for one of the companies. He obtained advertising valued at $20,847.42, but did not pay the invoices issued. In February 2015, he applied on behalf of the same company for a Z Energy fuel card. He accrued a debt of $4,627.27 on that fuel card which was never paid.
The first trial
Prior to the first trial in 2015, the defence applied to sever the 58 charges relating to the period from 2003 to 2012 so they could be heard over five separate trials. That proposal was modified by agreement and the Judge accepted an appropriate distinction could be made between the charges which arose before Mr Smith’s bankruptcy and those which arose after. The 42 charges relating to the pre‑bankruptcy period were subsequently condensed to 26 charges. Those charges were heard in a Judge-alone trial which ran for more than a month. Mr Smith was found guilty of 21 of the 26 charges.
The first sentencing decision
Sentencing proceeded on 24 July 2015. Judge Spear outlined the nature of the dishonest transactions. He acknowledged the amount of the loss was somewhat lower than the sum of $684,000 claimed by the Crown. Nevertheless, he said it was at least $500,000. He added:[8]
But it is not just the financial loss, there is the emotional harm that you have done these people and, in particular, because of their age you have robbed them [of] their nest egg for retirement and this is not one that they will be able to recover. Your effect upon their lives has been devastating and for that you must clearly be held to account.
[8]R v Smith, above n 1, at [16].
In terms of the aggravating features the Judge observed the offending was carefully planned, saying “[i]t was deliberate and it involved you deceiving these people time and time again.”[9] He noted the total amount involved and he also noted the number of victims and the effect on them as evidenced by the victim impact statements. He also pointed out that those aggravating features:[10]
… really pale in comparison to the breach of trust that was involved in this offending. Each of these people placed in you a high degree of trust and that was because of the way that you sought them out and presented yourself to them.
He then added:[11]
… the reason you were able to continue as long as you did was because you went out and found more potential victims, obtained funds from them, and used that to keep other clients (as it were) content even though you were robbing them blind.
The Judge concluded it was in effect a “Ponzi scheme” and “[i]t was as dishonest a scheme as can be imagined”.[12]
[9]At [17].
[10]At [20].
[11]At [20].
[12]At [20].
The Judge identified no mitigating circumstances of the offending and he saw no realistic potential for recovery. He discounted any suggestion of remorse and he considered Mr Smith was at high risk of reoffending, noting that further charges had been laid earlier that year. While he acknowledged Mr Smith had a troubled family life, some personal tragedies, and a “raging problem with alcohol and drugs for some years”, he determined a sentence of five years’ imprisonment was warranted having regard to the principle of accountability.[13] He declined to impose a minimum period of imprisonment, noting Mr Smith had little in the way of previous convictions.[14]
Sentencing on the balance of the charges
[13]At [25].
[14]At [26].
As soon as he was sentenced on the first tranche of charges, Mr Smith sought a sentence indication on the remaining charges. An amended summary of facts was prepared for the sentence indication. The 16 existing charges were condensed into 10. In addition, he faced three additional charges relating to the 2015 offending.
In giving his sentence indication on the remaining 13 charges, the Judge said the facts suggested a three-year sentence might be justified, but he accepted the Crown submission that an additional two-year sentence would reflect the totality of the offending and recognise the guilty pleas which came at a relatively late stage. It was also said to take into account Mr Smith’s agreement to participate in restorative justice in respect of all matters. The Judge also indicated that, as part of the sentence indication, he would not impose a minimum non-parole period but, if the appellant had gone to trial and been found guilty of those additional charges, the Court would give serious consideration to a minimum non-parole period.
The Judge encouraged Mr Smith to take time to reflect on the indication but, after speaking with his lawyer, Mr Smith confirmed he wished to accept it.
In the period between the sentence indication and sentencing itself, Mr Smith participated in a restorative justice conference with one of the victims, Ms Southwick. We assume she was the only victim prepared to participate.
When sentencing Mr Smith, the Judge briefly described the offending, saying:[15]
What occurred of course by these new charges was a continuation of your old practice of gaining the confidence of others and effectively stealing from them. Again, it was relatively sophisticated in some respects but demonstrated your plausibility and your ability to gain the confidence of people quite quickly and that of course was the hallmark of all the offences in the trial that went to hearing earlier this year.
[15]At [8].
The Judge noted Mr Smith’s positive participation in a restorative justice conference, as well as his statement that he wished to pay everyone back when he got out of prison, but said “no one could have any confidence that you will have the ability to do so on your release”.[16] The Judge also acknowledged the statement from counsel that Mr Smith was remorseful and that he accepted he had “certain psychological difficulties” which he was willing to address.[17] The Judge expressed the hope that that resolve was maintained. The indicated sentence of two years’ imprisonment was imposed.[18]
The sentence appeal
[16]At [7].
[17]At [11].
[18]At [10].
Mr English acknowledges there is no tariff as such for dishonesty offending. However, there are a number of relevant factors to consider, including:[19]
… 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.
[19]R v Varjan CA97/03, 26 June 2003 at [22].
Mr English relies on what he describes as four “broadly comparable cases” to say the sentence in this case was excessive, particularly when the Judge did not articulate the starting point which inevitably must have been higher than the end sentence imposed.
In McGregor v R, Mrs McGregor pleaded guilty to 10 charges of theft by a person in a special relationship.[20] She was employed by Perpetual Trust Ltd where she had responsibility for the management of estates, trusts and personal affairs of clients. The offending involved 12 different victims where, using a variety of methods to use client funds, she took for her own purpose and without authority $472,917.20. The offending spanned most of the five-and-a-half-year period of her employment. There was no loss to the victims in that case as Perpetual Trust indemnified them. The Judge adopted a starting point of five years’ imprisonment which was upheld on appeal.
[20]McGregor v R [2015] NZCA 565.
In Robertson v R, Mr Robertson was convicted of 23 charges of theft by a person in a special relationship, 11 charges of obtaining by deception and four charges of dishonest use of a document.[21] Mr Robertson sold software packages intended to assist his customers to trade on share, foreign exchange and commodities markets. As the programmes were not easy to use, leading to complaints, Mr Robertson then offered to invest for the victims, representing himself as an expert trader. However, he did not invest the money but used it for his own purposes to fund a lavish lifestyle. The net loss to victims from his offending over the six-year period was assessed to be approximately $1,200,000 plus AUD 271,200. There were 22 victims, mostly retired or approaching retirement age. The Judge’s starting point of seven years’ imprisonment was upheld on appeal.
[21]Robertson v R [2020] NZCA 218.
In Cherry v R, Mr Cherry pleaded guilty to two charges of making false statements by a promoter, one charge of theft by misappropriation and one charge of theft by a person in a special relationship.[22] Mr Cherry was an independent financial adviser who undertook to invest clients’ funds on a professional basis. Over a five‑year period he received over $9,000,000 of which he dishonestly misappropriated or stole $4,700,000. On the collapse of his business the victims collectively lost over $5,000,000. The investing clients were predominantly of modest means and the collapse of his business had a catastrophic impact on their retirement. An aggravating feature of the offending was that Mr Cherry induced his clients to take out mortgages against equity in their homes to invest with him. On appeal the eight-year starting point was held to be within range.
[22]Cherry v R [2013] NZCA 636.
Finally, in Kiro v R, Mr Kiro pleaded guilty to 10 charges of theft by a person in a special relationship, 10 charges of forgery-related offending, one charge of obtaining by deception and one charge of dishonestly using a document.[23] Mr Kiro presented himself as a highly qualified investment adviser and provided false documents to support this claim. Over a period of 16 months he defrauded his victims in the total sum of $249,765, although he made repayments of $62,000. In the District Court, the Judge adopted a starting point of four years’ imprisonment on the lead charges of theft by a person in a special relationship and uplifted it by a further 18 months for the other dishonesty-related offences. The Court held that a five‑and‑a‑half-year starting point for the totality of the appellant’s offending was “stern, but not beyond the pale”.[24]
[23]Kiro v R [2016] NZHC 1550.
[24]At [47].
Having regard to these cases, Mr English submits a starting point of four and a half to five years would have been appropriate. While acknowledging that the offending was on a fairly large scale and not unsophisticated, it did not involve the magnitude of fraud in Robertson or Cherry. While there were a significant number of victims in this case, Mr English considered none were especially vulnerable, whereas in McGregor the victims were very vulnerable, being people unable to manage their own affairs.
The fact the offending was motivated by greed was not a distinguishing feature. All the cases involved an element of greed. In terms of the amounts involved the loss of $610,0000 is only a little above McGregor and Kiro, but well below either Robertson or Cherry. While acknowledging the span of the offending was great, Mr English says the majority of the offending took place between 2003 and 2005 and in all the comparable cases, the offending took place over a number of years.
Mr English acknowledges there was a significant breach of trust in this case but considers that all the cases involve a breach of trust and the breach in McGregor was far greater. He also acknowledges there was a significant impact on the victims. However, Mr English submits the financial losses were reduced to some extent as in some cases properties were able to be sold for more than they were purchased for and, in the case of Mr Ellis, Mr Smith assisted him to negotiate reducing the bank debt from $300,000 to around $31,000. Overall, Mr English submits there is nothing in this factor which distinguishes it from the other cases.
Mr English points out that as the sentence took into account mitigating factors such as guilty pleas on the later charges and participation in restorative justice, the starting point must have been more than seven years. This would place it in a more serious category than Robertson, which he submits is in error.
Mr English also submits there were mitigating factors which should have, but did not, attract a discount. Mr Smith was given no discrete discount for his troubled background, his issues with alcohol and drugs, and the steps he had taken prior to sentencing to address these issues. This is contrary to Zhang v R, where the Court of Appeal recognised that pre-existing addiction and efforts by defendants to address the underlying causes of offending are relevant mitigating factors for sentencing.[25] Mr English also queries what discount was actually given for the guilty plea and Mr Smith’s participation in restorative justice.
[25]Zhang v R [2019] NZCA 507, [2019] 3 NZLR 648 at [139]–[150].
Given the starting point should have been five years, and there should have been discounts applied for those factors, Mr English says the end sentence should have been less than five years and the seven-year sentence is manifestly excessive.
Discussion
As both counsel accept, there is no guideline judgment for fraud offending and the culpability of a particular offender must be undertaken by reference to the aggravating features of fraud offending as set out in [28] above.
While, of course, the courts must take into account the general desirability of consistency in sentencing in respect of similar offenders committing similar offences in similar circumstances,[26] the ultimate question for us is whether the starting point adopted is within an acceptable range. We must have regard to all the relevant principles of sentencing, including the gravity of the offending in the particular case, the degree of culpability of the offender and the maximum penalties which are prescribed for the offences.[27] This approach was articulated in Arnott v R, where this Court said:[28]
… there is questionable utility in applying a rigid comparative analysis between sentences imposed in circumstances which inevitably differ in at least one material respect. Consistency is a necessary value but it does not impose absolutes. In an area of offending like serious fraud, the leading authorities set the applicable parameters. The question is always whether the starting point adopted is within an acceptable range by reference to the Judge’s assessment of the particular culpability factors.
[26]Sentencing Act 2002, s 8(e).
[27]Sections 8(a) and (b).
[28]Arnott v R [2015] NZCA 236 at [12].
In our view, there were a number of aggravating features of this offending. In terms of the nature and magnitude of the offending, we accept the Crown submission that Mr Smith committed multiple categories of deceit spanning well over a decade and involving a very large number of transactions. Mr Smith was ultimately sentenced on 34 charges. This is many more charges than in the majority of cases referred to despite the Crown condensing the charges to Mr Smith’s advantage.[29] Indeed, this case was remarkable for the number and variety of methods by which Mr Smith took money and used it for his own purposes.
[29]Mr Robertson was sentenced on 38 charges but offended over a shorter period: Robertson v R, above n 21.
In terms of the type of circumstances and the number of victims, there were more than 20 victims, most of whom were individuals who looked on Mr Smith as both a friend and trusted adviser. There was, as is so often the case, a significant breach of trust involved in almost all the offences.
The motivation for the offending was for personal gain and to fund a lifestyle which Mr Smith could not otherwise afford.
The amount of the fraud was in excess of $610,000, with no hope of recovery.
The particularly aggravating features of this offending are the period over which it occurred and the fact Mr Smith was not dissuaded by his bankruptcy in 2003 from returning to investment activities. More importantly, he continued to offend after he was arrested and charged in 2012. This factor goes to both his culpability and the weight which can be placed on any expressed remorse.
We do not agree that the five-year starting point imposed on the first 21 charges of theft by a person in a special relationship was excessive. Each charge has a maximum seven-year sentence and there can be no criticism of a five-year starting point having regard to the gravity of the offending. There were also no relevant personal mitigating factors raised which justified reducing that sentence.
When sentencing Mr Smith for the further offending, being the post‑bankruptcy offending and the post-arrest offending, the latter of which spanned a nine‑year period from 2007 to 2015, the Judge considered a starting point of three years, but reduced it to two years, taking into account considerations of totality, Mr Smith’s participation in restorative justice and a modicum of remorse and rehabilitative potential. Thus, the sentence did take into account those mitigating factors.
We do not consider there was a basis for giving a further discount for Mr Smith’s troubled background, his issue with alcohol and drugs, and the steps he had taken prior to sentencing to address these issues. It is clear the Judge did have regard to Mr Smith’s rehabilitative potential, as demonstrated by his efforts to address his drug and alcohol issues. However, there was no basis on which to give him a discount for his issues with alcohol and drugs. This is because there was no link drawn whatsoever between those issues and the offending. Notwithstanding any issues with drugs or alcohol, it seems Mr Smith was a highly functioning individual who was capable of maintaining a professional front with all the people he was dealing with, and there was no suggestion these issues led to his offending.
Overall the starting point must have been somewhere between seven and eight years (noting that the sentence was reduced from eight years in part to reflect totality). That places it as roughly equivalent offending to Robertson and Cherry. While those cases both involved more money, in this case, there were many charges, over a longer period of time, and there was offending which continued after both Mr Smith’s bankruptcy and arrest.
In our view, taking those factors into account, we cannot say that the starting point of the sentence was too high and, more importantly, we cannot say the end sentence of seven years was manifestly excessive such that a different sentence should be imposed.
Given we do not consider the appeal has merit, and the four-year delay in filing the appeal is not explained, we decline the application for an extension of time.
Result
The application for an extension of time to appeal is declined.
Solicitors:
Crown Law Office, Wellington for Respondent
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