Spence v The Queen
[2021] NZCA 499
•30 September 2021 at 11.00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA279/2020 [2021] NZCA 499 |
| BETWEEN | SAM OLIVER SPENCE |
| AND | THE QUEEN |
| Hearing: | 24 August 2021 |
Court: | Collins, Duffy and Peters JJ |
Counsel: | N P Chisnall and L A Elborough for Appellant |
Judgment: | 30 September 2021 at 11.00 am |
JUDGMENT OF THE COURT
AThe application to adduce fresh evidence is allowed.
BThe appeal against sentence is allowed in part.
CThe sentences imposed on charges 2, 3, 4, 8 and 13 are quashed. A sentence of three years, nine months’ imprisonment is substituted on charge 2. The same sentence is imposed on charges 3, 4, 8 and 13, each to be served concurrently with the sentence imposed on charge 2. The sentences imposed on the remaining charges are unchanged.
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REASONS OF THE COURT
(Given by Peters J)
Mr Spence appeals against his sentence of five years, three months’ imprisonment imposed by Judge D J Sharp on 5 May 2020 for 12 offences under the Companies Act 1993 (Act) and Insolvency Act 2006 (IA).[1] Mr Spence pleaded guilty to the offending following a sentence indication on 23 August 2019.[2]
[1]R v Spence [2020] NZDC 7773 [Sentencing notes] at [15].
[2]R v Spence DC Auckland CRI-2018-090-5894, 23 August 2019 [Sentencing indication].
The charges to which Mr Spence pleaded guilty were:
(a)charges 1 and 7: as a director, failing to comply with a notice given by a liquidator pursuant to s 261 of the Act;[3]
(b)charges 2 and 3: breach of director’s duty to act in good faith and in the best interests of the company;[4]
(c)charges 4, 8, and 13: being either the director of or involved in the management of a “phoenix” company as defined in s 386B(1) of the Act;[5]
(d)charges 9 and 12: failing to file a statement of affairs;[6]
(e)charges 6 and 10: participating in the management of a business whilst an undischarged bankrupt;[7] and
(f)charge 11: misleading or attempting to mislead the Official Assignee.[8]
[3]Companies Act 1993, s 261(6A).
[4]Section 138A(1).
[5]Section 386A(2).
[6]Insolvency Act 2006, s 433(1).
[7]Section 436(1)(b).
[8]Section 440(1)(b).
Charge 5 was brought against Ms B, Mr Spence’s de facto partner, and is irrelevant to this judgment.
The maximum term of imprisonment for the charges referred to in [2(b)] and [2(c)] above is five years’ imprisonment. The maximum term for the charges referred to in [2(d)] and [2(f)] above is 12 months’ imprisonment, and for the remaining offending is two years’ imprisonment.
Sentence
The Judge’s starting point for the offending was six years’ imprisonment.[9] The Judge increased the sentence by six months for Mr Spence’s offending whilst bailed on the pre-3 August 2018 offending (the significance of that date is explained below), and by a further six months for Mr Spence’s prior convictions.[10] The Judge’s discounts for personal mitigating factors and guilty pleas brought the end sentence to five years, three months’ imprisonment.[11]
[9]Sentencing indication, above n 2, at [23].
[10]At [23]–[24].
[11]Sentencing indication, above n 2, at [25]; and Sentencing notes, above n 1, at [15].
Mr Chisnall, counsel for Mr Spence on appeal, submits the sentence is manifestly excessive. In particular, Mr Chisnall submits the Judge’s starting point exceeded the available range, that the discount for personal mitigating factors was insufficient, and that the Judge erred in uplifting for Mr Spence’s previous convictions. The Crown contests only the first two of these submissions.
Offending
The following derives from the summary of facts, on the basis of which Mr Spence pleaded guilty (SOF).
CRL — charges 1 and 3
Compass Roofing Limited (CRL), of which Mr Spence was the sole director, was incorporated in December 2011 and carried on business as a roofing contractor.
In August 2015, Mr Spence incorporated Compass Group Limited (CGL), apparently recognising that CRL’s financial position was perilous. Mr Spence was also the sole director of CGL.
As at March 2016, Mr Spence’s current account with CRL was overdrawn by $154,602.00. CRL’s solvency at that date depended on Mr Spence’s ability to repay that debt. Absent that, CRL was insolvent.
In late March or early April 2016, Mr Spence instigated the transfer by CRL of its assets to CGL for $15,461.46, when those assets were valued at $148,423, that is at an undervalue of $132,961.54. In addition, and again at Mr Spence’s instigation, CRL transferred funds due to CRL to CGL, these sums totalling $147,957.71.
Mr Spence also failed to repay his shareholders current account with CRL, which was overdrawn by $164,828.48.
These events gave rise to charge 3.
On the application of the Inland Revenue Department (IRD), CRL was placed into liquidation on 23 September 2016. On that date, the liquidators issued Mr Spence with a notice in writing under s 261 of the Act. Mr Spence failed to comply with the notice and failed to attend a meeting with the liquidators on 26 September 2016. These matters gave rise to charge 1.
As at the date of the SOF, claims by creditors in CRL’s liquidation totalled $641,391.51, of which the liquidators had recovered only $37,026.84, Mr Spence having paid $17,546.15 of that sum.
CGL — charges 2, 7 and 8
At all material times, CGL traded under the following names: “Compass Roofing”, “Compass Group” and/or “Compass Roofing Group”. The effect of CGL doing so was to render it a phoenix company within, as we have said, the definition of s 386B(1) of the Act.
It is an offence for a director, Mr Spence, of a “failed company” (CRL in this instance) to be a director of, or directly or indirectly concerned in the management of, a phoenix company.[12] Mr Spence’s directorship of CGL was thus an offence, giving rise to charge 8.
[12]Companies Act, s 386A.
CGL itself began experiencing financial difficulties. Again, Mr Spence instigated the transfer by CGL of its assets to another company he had incorporated, Caspian Engineering Ltd (CEL).
On 1 April 2017, CGL sold its assets to CEL for $92,639.16. Those assets being valued at $139,750, on its face this sale was at an undervalue of $47,110.84.
To compound matters, CEL paid only $77,101.50 of the purchase price, and even that sum derived from CGL. In short, CGL transferred its assets to CEL for no consideration, and thus in reality incurred a loss of $139,750.
Moreover, Mr Spence cited CEL’s bank account as the account to which debtors of CGL should pay sums due for work done by CGL. The sums so diverted totalled $159,244.87, although $77,101.50 was applied as per the previous paragraph. Accordingly, the net loss to CGL was $82,143.37.
Mr Spence and Ms B also drew $532,972.70 from CGL, this sum being paid into their joint account of which only $154,256.98 was repaid, leaving a deficit of $378,715.72. Apparently Mr Spence and Ms B applied much of this to pay wages, in an apparent attempt to avoid CGL’s PAYE obligations to the IRD.
These events gave rise to charge 2.
Again, an order was made for the winding up of CGL on the IRD’s application.
On 10 July 2017, the liquidators issued Mr Spence with a notice in writing pursuant to s 261 of the Act. Mr Spence did not comply with the notice (charge 7), but rather sent offensive and abusive emails to the liquidators.
Claims by creditors in CGL’s liquidation, including the IRD for $111,678.12, are not less than $388,860.12. As at the date of the SOF, the liquidators had recovered $127,777.72.
CEL — charge 4
Although Ms B was CEL’s sole director, the SOF records that Mr Spence was in control of the company. Having transferred CGL’s undertaking to CEL, Mr Spence advised clients there would be no change to the business, and CEL continued to use the same website and logo, and to trade under CRL’s trading names. These events gave rise to charge 4.
Adjudication — charges 6 and 9
Mr Spence was adjudicated bankrupt on 13 February 2018.
Mr Spence failed to file a statement of affairs with the Official Assignee, being an offence pursuant to s 433(1)(a) of the IA.
Also, in breach of s 149(1)(a) of the IA, Mr Spence continued to take part in the management of CEL, being an offence under s 436(1)(b).
These acts/omissions gave rise to charges 6 and 9.
3 August 2018 — charges 10 to 13
Mr Spence was charged with the above offending on 3 August 2018.
Thereafter, Mr Spence continued to participate in the management of CEL (charges 10 and 13); sought to mislead the Official Assignee (charge 11); and again failed to file a statement of affairs (charge 12).
Lastly, it appears from the Judge’s sentencing indication that CEL was itself placed into liquidation which we expect must have occurred sometime in 2018 or 2019.
Losses
As appears below, the lead offending at sentencing was that under s 138A of the Act. Section 138A was enacted in 2014. It is one of the few offences under the Act for which the maximum sentence of five years’ imprisonment is reserved.
A breach of s 138A is proved if a director exercises his or her powers or performs his or her duties as a director in bad faith, believing that his or her conduct is not in the best interests of the company concerned, and knowing that his or her conduct will cause the company “serious loss”. In short, the offending requires dishonesty.
The extent of the loss Mr Spence caused to CRL and CGL is unclear. The Judge’s sentencing indication is to the effect the Crown calculated it at $952,526.00, with other losses said to take the total to more than $2.4 million.
It is not apparent to us how those sums were calculated but, at the very least and on our reckoning, the loss occasioned by the sales at undervalue and the diversion of funds totalled $502,812.62. This takes no account of the failure to repay the overdrawn current accounts. A failure to repay might constitute a breach of s 138A depending on the circumstances prevailing at the time the funds were drawn. Certainly Mr Spence and Ms B must have known they would never repay the more than $500,000 they drew from CGL, so that would constitute a loss to CGL, at least to the extent they applied the funds other than to meet CGL’s obligations.
In any event, we shall proceed on the basis that the indisputable loss to the companies was between $500,000 and $1 million, with creditors defrauded to at least this extent.
Sentence
Starting point
In determining the starting point, the Judge took into account the need for denunciation of Mr Spence’s conduct and his failure to act in accordance with his duties as a director; the need for deterrence of Mr Spence personally and more generally; the need to promote Mr Spence’s rehabilitation; the harm to victims caused by the almost complete absence of any funds to pay the companies’ debts; and the need to impose the least restrictive outcome appropriate in the circumstances.[13]
[13]Sentencing indication, above n 2, at [12].
From there, the Judge turned to assess the gravity of Mr Spence’s offending and in that regard referred, correctly, to the following paragraphs of this Court’s decision in R v Varjan as to the manner in which culpability for offending involving dishonesty is to be assessed:[14]
[22] 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.
[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 investigators, plea, remorse and personal circumstances necessarily must be assessed in each particular case.
[14]At [13], citing R v Varjan CA97/03, 26 June 2003.
The Judge took the offending under s 138A of the Act as the lead offending. The Judge considered Mr Spence’s breaches of the phoenix company provision (s 386A of the Act) “part and parcel” of the lead offending, but said that on its own that offending could have justified a starting point of two to three years.[15]
[15]At [14] and [17].
Regarding the gravity of the offending, the Judge described it as serious, prolonged, causing large scale harm, whether measured by loss to the companies or to their creditors, calculated even if unsophisticated, and as entailing a general abuse of the trust of those who dealt with the companies, as opposed to a more specific breach of trust to a particular individual.[16] Only modest reparation had been made and Mr Spence had failed to co‑operate to improve the position.[17]
[16]At [14] and [21].
[17]At [16].
The Crown proposed a starting point of eight years’ imprisonment comprising six and a half years for Mr Spence’s pre-3 August 2018 offending (pre-August 2018 offending) and two and a half years for the subsequent offending (post‑August 2018 offending). Defence counsel proposed four years, three months for all offending.
The Judge adopted a starting point of six years’ imprisonment.[18] This comprised five years for Mr Spence’s pre-3 August 2018 offending, and a two year uplift, for Mr Spence’s post‑August 2018 offending, reduced to one year to keep the starting point proportionate to the totality of the offending.[19]
Appellant’s submissions
[18]At [22]–[23].
[19]See Sentencing Act 2002, s 85.
Mr Chisnall does not take any issue with the Judge’s identification of the relevant purposes and principles of sentence, or the matters he identified as relevant to the assessment of Mr Spence’s culpability.
What Mr Chisnall’s submission comes down to is that the starting point of six years vastly exceeded the available range for the offending, resulting in a manifestly excessive end sentence. Five years is the maximum term of imprisonment available for the most serious charges, of which there are five and, accordingly, even if the offending was within the most serious of its kind (and Mr Chisnall says it was not), the starting point was excessive.
Mr Chisnall submits this is apparent when the present case is compared to others in which offenders have been sentenced for offending involving fraud, for which greater maximum penalties are reserved. This is a convenient place to note that Mr Chisnall categorises this offending as “regulatory” but in fact this is a distinction without a difference in the present circumstances. As we have said, the elements of s 138A require dishonesty.
Mr Chisnall referred us to the only case in which the High Court had considered phoenix company offending, R v Lau,[20] and two District Court decisions to which the High Court Judge referred, and several others cited as a useful “cross‑check”.
[20]R v Lau [2018] NZHC 2935.
In Lau, Mr Lau pleaded guilty to numerous offences under the Resource Management Act 1991 and the Building Act 1994, and one offence under s 386A of the Act. This latter offending was not the lead offence. The failed company owed at least $39,000 with a further potential claim of $120,000. Having had regard to the two District Court decisions to which we now refer, Ministry of Economic Development v Mitchell and Ministry of Business, Innovation and Employment v Anderson, Whata J considered that this offending on its own would attract a starting point of six to 10 months.[21]
[21]At [31], citing Ministry of Economic Development v Mitchell DC Auckland CRI-2011-004-2063, 18 July 2012; and Ministry of Business, Innovation and Employment v Anderson DC Nelson CRI-2014-042-893, 21 August 2014.
In both District Court cases, the defendant had instigated the winding up of an insolvent company and the transfer of the business and/or goodwill to a phoenix company in its place.
In Mitchell, the Judge adopted a starting point of “less than two years”.[22] It is clear, however, the Judge was influenced by the (responsible) manner in which Mr Mitchell had conducted himself subsequent to the offending, having made substantial reparation of 70 cents in the dollar.[23]
[22]Ministry of Economic Development v Mitchell, above n 21, at [14].
[23]At [6] and [11].
In Anderson, subject to some recoveries, the failed company was left with debts of $600,000. The District Court Judge adopted a starting point of two years’ imprisonment.[24]
[24]Ministry of Business, Innovation and Employment v Anderson, above n 21, at [15].
The authorities to which Mr Chisnall referred us as cross-checks concerned dishonesty offending by a director charged with multiple offences, usually under the Crimes Act 1961. These were Bell v R, R v O’Leary, R v Cropp, Bublitz v R, and Tallentire v R.[25]
[25]Bell v R [2014] NZCA 210; R v O’Leary [2013] NZHC 2784; R v Cropp [2013] NZHC 1193; Bublitz v R [2019] NZCA 364, [2019] 3 NZLR 533; and Tallentire v R [2012] NZCA 610, [2013] 1 NZLR 548.
In Bell, Mr Bell, a chief executive, pleaded guilty to seven charges of fraud. Mr Bell defrauded an insurer, Vero and investors of approximately $1.1 million, which he applied to keep the company afloat (and to pay his salary). The offending involved a significant breach of trust, was premeditated, and ongoing. This Court upheld a four year starting point.[26]
[26]Bell v R, above n 25, at [28].
O’Leary, Cropp and Bublitz principally involved multiple charges of theft by a person in a special relationship, and arose in the context of the rash of failed finance companies. These cases involved deliberate breaches of controls intended to protect investors’ funds. The breaches in these cases were not for self-gain, and nor was loss inevitable, but substantial loss was in fact caused. The losses ranged from (net) $860,000 to $9.1 million, and the starting points from three years, four months’ imprisonment to five years.[27]
[27]R v O’Leary, above n 25, at [17]; R v Cropp, above n 25, at [48] and Bublitz v R, above n 25, at [159].
Tallentire was an entirely different case. It was essentially a case of outright theft of many millions of dollars, with starting points of eight and a half years’ imprisonment for the two most culpable offenders and six years’ imprisonment for the third.[28]
[28]Tallentire v R, above n 25, at [149], [151] and [185].
Having regard to these authorities, Mr Chisnall submits a starting point of no more than three years was warranted for the pre-August 2018 offending. He does not challenge the one year uplift for the post-August 2018 offending, giving a proposed starting point for all of the offending, pre- and post-August 2018, of no more than four years.
Respondent submissions
Crown counsel, Ms Hoskin, submits the starting point was within range. She submits that the Judge was correct to identify Mr Spence’s offending as warranting a denunciatory and deterrent response. Ms Hoskin also submits that the maximum three year starting point proposed by the appellant would pay “scant regard to the scope and breadth” of the pre-August 2018 offending.
In support of her submissions, Ms Hoskin challenged Mr Chisnall’s submission that Bell could be considered an appropriate comparator for Mr Spence’s prolonged, persistent and flagrant offending which she submitted had caused losses exceeding the $1.1 million in Bell, and to more parties.
Ms Hoskin submits Young v R is the authority most on point.[29]
[29]Young v R [2018] NZCA 604.
Mr Young faced a total of 13 charges, mainly under the Crimes Act. However, four were for carrying on a business fraudulently, contrary to s 380(1) of the Act, another offence under the Act for which a maximum term of five years’ imprisonment is reserved. Aspects of Mr Young’s offending were similar to Mr Spence’s, in the sense that it was deliberate, repeated and blatantly dishonest. Mr Young is said to have caused losses of $269,076.69, so less than Mr Spence. This Court upheld the District Court Judge’s starting point of five years, eight months’ imprisonment.[30]
[30]At [59].
Ms Hoskin also referred us to R v Clark.[31] Mr Clark operated a ponzi scheme. The loss occasioned by Mr Clark’s offending was $386,000 to 17 investors, over 18 months. This Court agreed on a starting point of “four to five years”.[32]
Discussion
[31]R v Clark CA364/99, 23 November 1999.
[32]At [11].
Whilst we agree with much of the Judge’s decision — the relevant aspects of ss 7 to 9 of the Sentencing Act, that the lead offending was that under s 138A, and that the phoenix company offending was part and parcel of that offending — we accept Mr Chisnall’s submission that the starting point of six years was too high.
The important features of this offending are, first, that it was repeated — CRL to CGL, and then CGL to CEL. Secondly, Mr Spence knew his actions would cause a total loss to the companies’ creditors. As we have said, these included the IRD but no doubt employees and suppliers also. Thirdly, none of the cases to which we were referred is precisely on point. However, it is clear the quantum of financial loss is only one matter to be taken into account in setting the starting point. The starting point in another case in which greater loss was caused is not determinative of the starting point in this case.
Taking those matters into account, the cases to which we have referred, and given the five year maximum term of imprisonment for offending under s 138A, we consider the appropriate starting point for the lead offending to be, say, four years’ imprisonment.
Mr Spence’s failure to assist the liquidators or the Official Assignee was separate offending, no doubt hindered those officers in meeting their responsibilities, and warranted discrete recognition of, say, six months’ imprisonment.
Turning to the other aspects of the Judge’s starting point, although Mr Chisnall did not challenge the uplift of one year for the post‑August 2018 offending, this was at the upper end of the available range. This is because charges 10 and 13 overlapped and were a continuation of charge 4.
Likewise, the uplift of six months for offending on bail was at the upper end, if not in excess, of the available range, given that was 50 per cent of the term imposed for the subsequent offending,
Taking those last two matters into account, we propose to proceed on the basis that a starting point of five years’ imprisonment was appropriate for all of the offending and including an uplift for the offending whilst on bail.
As we have said, the Crown does not dispute Mr Chisnall’s submission that the six-month uplift for Mr Spence’s prior criminal history should not have been imposed.
Mitigating factors
The next matter Mr Chisnall contests is the discount the Judge gave Mr Spence for medical issues and events which Mr Chisnall submits diminished Mr Spence’s moral culpability for the offending, in the sense discussed in Orchard v R.[33]
Background
[33]Orchard v R [2019] NZCA 529, [2020] 2 NZLR 37 at [46].
After the sentencing indication, but before sentencing itself, Mr Spence filed a report from Dr Bramhall, a consultant forensic psychologist dated 6 January 2020 (Bramhall report). Mr Spence’s then counsel submitted to the Judge that the matters in the report warranted recognition by a discount to the starting point.
Whilst sympathetic, the Judge considered a discount of four months was all that could be justified, given the nature of the offending, the length of time over which it persisted, and the extent to which it was planned.[34]
[34]Sentencing notes, above n 1, at [12] and [15].
Mr Chisnall submits that discount was inadequate recognition of the matters referred to in the Bramhall report but, in any event, he also now seeks leave to adduce a more recent report by Dr S Lokesh of February 2021, Dr Lokesh being a consultant forensic psychiatrist (Lokesh report). Mr Chisnall submits the Lokesh report provides a more complete picture of Mr Spence’s personal experiences and characteristics, and how they intersected with his offending. Mr Chisnall submits the information in the report is credible and cogent and that it is in the interests of justice to admit it on appeal.
Ms Hoskin accepts that Dr Lokesh is a fully qualified expert in these matters, but submits the report is not credible to the extent it is based on matters that Mr Spence has himself reported. Ms Hoskin also submits that the report is neither fresh nor cogent. This is because the Bramhall report covers much of the same ground.
Despite Ms Hoskin’s objections, we allow the Lokesh report to be adduced. We accept Mr Chisnall’s submission that the report is cogent in the sense that it is more comprehensive than the Bramhall report.
That, however, does not take Mr Spence far, for these reasons.
First, we accept Ms Hoskin’s submission that little weight can be placed on either expert’s opinions to the extent they are based on matters that Mr Spence has self‑reported.
As Zhang makes clear, an application for a discount such as that sought in the present case should be based on persuasive evidence, as opposed to self‑reporting. The onus of proof, to the civil standard, lies on the offender.[35]
[35]Zhang v R [2019] NZCA 507, [2019] 3 NZLR 648 at [148].
Not only is persuasive evidence required, Mr Spence has previously proved to be unreliable. After the offending in the present case, and after the first PAC report had been prepared, Mr Spence attempted to subvert various of the Court’s processes. He filed a separate report describing his alienation from his Māori culture, completely deceiving the writer of that particular report in the process. As it turns out, Mr Spence is not Māori. He did not seek to rely on the report at sentencing. Quite separately, on an application for bail on both sets of offending, Mr Spence filed several emails and letters attesting, inter alia, to his good character. It transpired that Mr Spence had forged most if not all of these documents.
Secondly, the reports focus on the following three matters.
The first is Mr Spence’s self-reported abuse of alcohol at the time of the offending. This is not confirmed by other evidence so we put it to one side.
The second, which is confirmed, is that, in his early teens, Mr Spence was diagnosed with Tourette’s syndrome. Reports at the relevant time, not before us but before the experts, also suggested Mr Spence was likely to suffer from ADHD and OCD.
The third is that in late-2017 Mr Spence sustained an injury to the head and neck. Although this injury is confirmed by a report prepared for ACC by a medical practitioner, Dr Anwar, Mr Spence’s offending was well advanced by late-2017. So that does not assist.
Mr Chisnall submits the matters identified in the reports warrant a discount of up to 15 per cent, and in any event substantially more than the Judge’s four-month discount.
We do not accept that submission. As Ms Hoskin submits, neither report establishes a causal link between the confirmed matters to which they refer and Mr Spence’s offending nor, we add, do they establish an event which would diminish Mr Spence’s moral culpability. We decline to increase the discount the Judge gave.
To conclude, we reduce the starting point for all offending to five years’ imprisonment. Treating the Judge’s four-month discount for personal mitigating matters as equating to five per cent, Mr Spence is entitled to a total discount of 25 per cent. This reduces the end sentence to three years, nine months’ imprisonment.
Result
The application to adduce fresh evidence is allowed.
The appeal against sentence is allowed in part.
We quash the sentences imposed on charges 2, 3, 4, 8 and 13.
We substitute a sentence of three years, nine months’ imprisonment on charge 2. We impose the same sentence on each of charges 3, 4, 8 and 13, each to be served concurrently with the sentence imposed on charge 2.
The sentences imposed on the remaining charges are unchanged.
Solicitors:
Crown Law Office, Wellington for Respondent
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