The Queen v Haines

IN THE COURT OF APPEAL OF NEW ZEALAND

CA132/01

THE QUEEN

CAVAN STOBART HAINES

Hearing:	26 November 2001
Coram:	McGrath J Doogue J John Hansen J
Appearances:	D Stevens for Appellant K G Stone for Crown
Judgment:	5 December 2001

JUDGMENT OF THE COURT DELIVERED BY MCGRATH J

Introduction

The appellant, who was managing director of a company which sold medical and diagnostic equipment, was convicted of conspiracy to defraud along with three other employees of that company. The appellant was regarded as the principal offender and was sentenced to four and a half years imprisonment. He appeals against both his conviction and sentence. The offence of which he was convicted, on his own admission, involved systematic misrepresentation in claims made to a public health funding agency, over a period of 4 years. His company had supplied items to medical practitioners and midwives which were eligible for subsidy from public funds administered by the agency. The appellant’s defence was that he had an honest belief he was justified in acting the way he did, it being his view the course he followed was for the benefit of both individual patients and the public health system. Despite objection from the Crown he was allowed to put that defence to the jury which rejected it.

Background facts

At the time of the offending the appellant was managing director and principal shareholder of New Zealand Diagnostics Ltd. That company was the supplier of wholesale medical products to the medical profession. The appellant, in conjunction with three employees of the company put in place a system to make claims on Health Benefits Limited, a public company administering public funds made available for purposes which included subsidy of specified medical equipment. Some of the medical and diagnostic equipment New Zealand Diagnostics Ltd supplied was eligible for subsidy from the public funds involved but other equipment was not. The alleged fraud consisted of dishonestly representing to Health Benefits Limited, over a 4 year period on a monthly basis, that New Zealand Diagnostics Ltd had supplied subsidised equipment when what was being supplied was equipment not eligible for the public subsidy. The Crown’s case was that between April 1994 and August 1998 fraudulent claims totalling in excess of $5.5 million were made.
A feature of the alleged offending involved the appellant and the staff concerned setting up and operating what was known as a “swap scheme” whereby medical practices were encouraged to order from New Zealand Diagnostics Ltd subsidised items on the understanding they would be supplied by the company with different non‑subsidised items. Under the scheme there was a ratio of the number of subsidised items to be claimed to cover the cost of non-subsidised items that would be supplied. New Zealand Diagnostics would then claim subsidies from Health Benefits Ltd as if the subsidised items were supplied. No charge, of course, was made to the health professionals concerned for such unsubsidised products as the cost was unwittingly being met by the public agency.
Limits were placed on the amount of subsidised stock for which subsidies could be claimed from Health Benefits Ltd at any one time. As a result, where it was not possible to claim on the standard Wholesale Supply Order form, sufficient subsidised items to cover the cost of the non-subsidised items that were to be supplied, a variation of the scheme, which became known as “the extended swap scheme”, was employed by the company. This involved claims for subsidised products being made on more than one form. Sometimes claims would also be made on a form relating to one medical practice when the product was supplied to another practice.
In addition the Crown’s case at the trial was that, as well as operating these two schemes, the conspiracy to defraud involved development by some of those charged, including the appellant, of a practice of maximising what was to be claimed in the Wholesale Supply Order forms, for provision of subsidised product, regardless of the value of the product that was actually being supplied. The appellant in his evidence claimed to be unaware of this practice which, he said, was developed without his knowledge by office staff.

The appellant’s defence

At some stage prior to 1994 New Zealand Diagnostics Ltd had been supplying only subsidised products to medical practices. The appellant came to the view that what were described as “near patient” diagnostic tests, which were not subsidised, would offer substantial advantages for patients and the health system generally. Such tests could be administered, the results obtained and treatment of the patient determined by the medical practitioner all in the course of a single consultation. Because equipment for such tests was not subsidised, however, there was no incentive for medical practitioners to acquire the equipment for undertaking them.
The appellant made considerable efforts over a period of years to persuade the Government to make near patient testing equipment freely available to medical practices throughout New Zealand. He urged successive Ministers, Parliamentary Select Committees and government officials to alter the policy framework to enable near testing equipment to qualify for public subsidy. He gave evidence of his efforts at his trial and said that he became convinced of the benefits both in terms of health of individual patients and savings to the national health budget that would flow from the changes he was urging. The appellant was unsuccessful in his efforts to secure changes to the subsidy policies.
The tests which were being subsidised were administered in laboratories at a distance from medical practices and, as the appellant saw it, at a greater cost to public funds than near patient tests. It also took some days for results of those tests to come back to medical practitioners. This, in the appellant’s view, resulted in unnecessary precautionary prescribing of antibiotics to the detriment of patients and further unnecessary cost to public funds. His evidence was that he came to the conclusion that vested interests among the international pharmaceutical companies and within New Zealand medical profession were preventing public subsidy of near patient testing equipment for their own selfish financial interests.
There was some sympathy for the appellant’s cause among those with whom New Zealand Diagnostics Ltd had dealings in the medical profession and it was apparently suggested to the appellant that he might provide product that was not subsidised to medical practices but claim for it as though it were subsidised. The appellant said that, in effect, he took up the suggestion and the swap schemes referred to were put in place by him and others working for New Zealand Diagnostics Ltd. On the basis of those schemes employees solicited health professionals, in particular medical practices. He denied, however, any personal awareness of the further practice of New Zealand Diagnostics of “maximising” forms, and said, as already indicated, that was developed by the company’s staff without his knowledge.
On the basis of this evidence of the appellant’s state of mind, the defence put forward, at his trial, was that he had an honest belief that he was justified in acting the way that he had. It would have been “immoral”, he said, to act otherwise.
The appellant acknowledged that he knew that the invoices submitted to Health Benefits Ltd each month with supporting Wholesale Supply Order forms claimed subsidy payments for items not actually supplied. He admitted that the invoices were false, and that it was his intention that Health Benefits Ltd should make payment to New Zealand Diagnostics Ltd of what was claimed on them. He also admitted that he knew that the public agency concerned would not have paid out on the invoices had it known the truth behind the claims made. It was his assertion, nevertheless, that he had acted honestly because he believed the items concerned should have been provided free for the benefit of patients and the community. By providing them in accordance with its exchange schemes New Zealand Diagnostics Ltd was making savings for the country’s health budget. The appellant was pursuing, as his counsel Mr Stevens put it in this Court, a higher purpose for the benefit of patients and the health system which he could not otherwise have achieved. That end justified his means. That defence was rejected by the jury which, after a trial which occupied some 5 weeks and a retirement of 3 hours, found the appellant guilty of the charge of conspiracy to defraud.

Grounds of appeal

The appellant appeals on the following grounds:
[a]That the trial Judge erred:
(i) in failing to ensure that there was a subject index available to the jury when he provided them with a copy of the notes of evidence; and (ii) in failing to direct the jury that the copies of the notes of evidence that were supplied to them were not at any stage to be taken out of the jury room.
[b]The trial Judge erred in ruling that a BBC Horizon television documentary and a Television New Zealand Frontline documentary could not be admitted as evidence and shown to the jury on the grounds that they were hearsay.
[c]That the sentence of 4½ years imprisonment was manifestly excessive and wrong in principle.

The television documentaries

It is convenient to deal first with the Judge’s refusal to allow videotapes of two television documentaries to be played to the jury. The appellant sought during the trial to play the videotapes to the jury to support his evidence that he believed he was justified in acting as he did.
The appellant’s own evidence of the impact of the two documentaries on him was part of his general evidence as to his state of mind. The jury would, it was argued, be assisted in reaching its opinion of that impact by viewing the documentaries. In response it was the Crown’s contention that the videos related to collateral issues which were irrelevant to the trial as they did not go to whether the appellant had acted dishonestly. It had also been unsuccessfully argued by Mr Stone as prosecuting counsel that the defence of justification in the public interest was not available in law as it did not bear on the question of honest belief.
The documentaries were concerned with two of the medical conditions which, on the appellant’s view, could be better treated with near patient testing. The 1994 BBC Horizon documentary “Ulcer Wars” was concerned with the treatment of stomach ulcers. Research in the early 1990’s indicated, contrary to conventional wisdom, that stomach ulcers were not caused by stress but by the presence in the stomach of an organism known as H pylori. The documentary indicated that this organism could be eliminated after a two-week drug therapy course. The message was that current treatment at the time was not eliminating the ulcer condition but rather only treating its symptoms. This meant that patients would be taking the medication for their life. The appellant’s evidence was that he believed that the major international pharmaceutical companies wanted to prevent the release of these studies in order to protect their profits from the leading ulcer treatment drugs. He was also convinced that specialists treating these patients also had a vested interest in resisting changes to current treatment practices and that these parties were together able to convince the Government not to subsidise near patient tests which could quickly diagnose the presence of the organism in patients, enabling immediate treatment to eliminate it. New Zealand Diagnostic had available a patient test that could diagnose the presence of the organism within minutes.
The Television New Zealand documentary “The Disease of Poverty” was about rheumatic fever. It also was concerned with a medical condition which could with appropriate testing equipment be detected earlier and treated effectively. Throats infected by the infection known as Strep A left undiagnosed and untreated could cause rheumatic fever. Rheumatic fever is linked to cardiac conditions. New Zealand Diagnostics Ltd had available a one step test at a cost of $3.60 that could give an instant result indicating the presence of Strep A in the throat. The patient could then immediately be treated with antibiotics. Under the subsidised test procedure the doctor would take a throat swab which would have to be sent to the lab. It would take a number of days to get the result, at a cost per test of $13.30. Without subsidy from public funds medical practitioners had no incentive to acquire the near patient test. They would tend to prescribe antibiotics when taking the swab, before the swab results were known, leading to over prescribing of antibiotics when patients may not need them.
The trial judge had ruled early on in the trial, and later reiterated, that the appellant:
could raise a defence of honest belief that his actions were justified. That is that he had an honest belief he was entitled to act in the way that he did notwithstanding that it might be in breach of what he knew to be his strict legal obligations.
In this context Mr Stevens submitted to the Judge that:
the documentaries…went to the honesty of Mr Haines’ belief as being something that influenced his decision to embark on or continue with the “swap” scheme. He submitted that the jury should be able to see the documentary as they might assist them in assessing the credibility of his claim to that honest belief.
The Judge did not accept the submission. He cited the following passage from Subramaniam v Public Prosecutor [1956] 1 WLR 965, 966:
Evidence of a statement made to a witness by a person who is not himself called as a witness may or may not be hearsay. It is hearsay and inadmissible when the object of the evidence is to establish the truth of what is contained in the statement. It is not hearsay and it is admissible when it is proposed to establish by evidence, not the truth of the statement, but the fact that it was made.
The Judge then went on to hold:
That the documentaries exist is not in dispute, nor was there any dispute that Mr Haines played them to his staff and many others and appeared influenced by them. In those circumstances there cannot, I believe, be any other purpose in playing them to the Jury other than to portray, at least implicitly, their contents as the truth. There can be no doubt that the contents of the documentaries are hearsay on the Subramaniam test. Similar analyses can be found in cases such as Myers v DPP [1965] AC 1001.
In considering whether the documentaries were rightly excluded it is necessary to consider further the defence which the appellant was running at his trial. The Judge referred to a passage in this Court’s decision in R v Firth [1998] 1 NZLR 513, 517 when, in the course of discussing the Court’s earlier decision in R v Coombridge [1976] 2 NZLR 381, Eichelbaum CJ said in the judgment of the Court:
…if the defendant sets up a claim that he honestly believed he was justified in departing from the strict obligations, albeit for some purpose of his own, then his defence should be left to the jury for consideration, provided there is evidence on which it would be open to a jury to conclude that his conduct, although legally wrong, might nevertheless be regarded as honest.
Later Eichelbaum CJ continued:
Thus, in Coombridge the Court was of the opinion that it was not enough to direct the jury that an accused must be shown to have acted deliberately and with knowledge that he was acting in breach of his express legal obligation under ss220 and 224. There is a further question, namely whether the accused, notwithstanding the foregoing, might have honestly believed that he was entitled to so act. Provided there is evidence to raise the issue it must be left to the jury; and the concluding sentence indicates, as would be in accordance with principle, that the onus remains on the Crown to exclude this possibility.
In the present case the trial judge saw this passage as allowing the appellant to run his defence of justification. The approach taken by the Judge finds some support in Adams on Criminal Law at para CA220.06 where it is said:
The test postulated in R v Firth could create difficulty in so-called “Robin Hood” cases. For example, a defendant who acts under a belief that his or her taking of property was “justified” by a particular moral, ethical, political, or religious belief might not be guilty of theft.
We do not accept that this Court in Firth had in mind that a defence of honest belief might be made out on the basis of a moral belief that conduct which the defendant knew involved invoicing on a basis for which there was no entitlement was nevertheless justified. At the heart of this question is whether the notion of moral evaluation inherent in a judgment of dishonesty can turn on a concept of justification that transcends ordinary standards of what is honest. The observations in Firth set out in paragraphs [21] and [22] of this judgment apply where the defendant has a belief the conduct under challenge is honest and not dishonest. They do not apply, as here, where the defendant knows the conduct under challenge is dishonest but is motivated by genuine beliefs as to the justification for the known dishonest conduct. After all it seems highly inappropriate to characterise the motives of Robin Hood as honest. (See A Halpin, The Test for Dishonesty, [1996] Crim LR 283).
It is however unnecessary to traverse further these matters in the present appeal as the Judge allowed the defence to be put on the basis that the dictum in Firth applied. In our view it does not follow that the Judge was bound to permit videotapes of the documentary to be shown to the jury. The documentaries were concerned with alleged actions of pharmaceutical companies, and members of the medical profession which the appellant said he deplored. We incline to the view they had some relevance to his defence as the appellant also said they had a strong impact in the formation of his belief that he had a moral duty to counter what those interests were doing. The actions reflected in the documentaries were not, however, the subject of the trial and the Judge had the responsibility of ensuring they did not distract the jury from its essential task of determining whether the appellant’s conduct might be regarded as honest. In our view the documentaries were simply not sufficiently relevant to that issue to warrant their admission at the trial. This is a classic case demonstrating the need for the trial judge to control the scope of evidence substantially relevant only to a collateral issue. In the course of the trial the Judge had permitted the defence considerable latitude in scope of cross-examination of Crown witnesses and the evidence given by the appellant to develop fully the appellant’s concerns about the practices of others. In our view the minimal additional probative value of the type of material that was in the documentaries did not warrant the risks of distraction of the jury or further extension of a lengthy trial. For these reasons we conclude the documentaries were rightly excluded and reject ground (b) of the appeal.

Notes of evidence: lack of a subject index

At the commencement of the trial the Judge told the jury that the transcript of evidence would be provided to them each day after it had been checked by the Judge and counsel. He pointed out that receiving the transcript did not relieve them from the need to pay close attention to what the witnesses said in their evidence; it was rather there to help them clear up questions of detail later. The Judge also emphasised the importance of relying not only on evidence in chief but also checking what was said in corresponding cross-examination and re-examination.

By the end of the trial there were 2,400 pages of transcribed evidence. The jury had a table of contents, setting out the page numbers in the transcript at which the evidence of the listed respective witnesses in chief and under cross-examination could be found, and listing exhibits produced by each witness. In his summing up the Judge told the jury if they had a problem finding any evidence regarding a particular topic while deliberating they could ask for help in locating the material.
In R v McLean [2001] 3 NZLR 794 a Full Court of this Court, in a decision delivered following the trial of the appellant, said the following with regard to the recent development of making transcripts of evidence available to juries:
[41] Over relatively recent times there has been a considerable expansion of the written material provided to juries to assist them in the discharge of their responsibilities. In recent years, and reflected in the Law Commission Report (NZLC R69 Juries in Criminal Trials (February 2001)) and the ensuing discussions, Judges have been considering the giving of transcripts of evidence to juries and we understand that some trial Judges have begun to make transcripts available to juries.
[42] It is neither necessary nor appropriate in this case to embark on any discussion of the practice. In principle it can be proper to provide the jury with the transcript of the evidence in appropriate cases. Trial Judges have a broad discretion as to the conduct of trials. And whether to provide a transcript and, if so, on what principled basis are for the Judge to determine in the exercise of that discretion, weighing relevant considerations.
In R v McLean the Court accordingly moved away from the traditional view, indicated in cases such as R v Rawlings [1995] 1 All ER 580, 582 CA, that it was in general undesirable to give notes of evidence at the trial to the jury in case they were given disproportionate weight in relation to other evidence. The Court indicated that henceforth it would be proper for a trial judge to provide the jury with a transcript in appropriate cases. Decisions on whether in a particular case that was appropriate fell within the broad discretion of the trial judge as to the conduct of the trial and would require a weighing of applicable relevant considerations.
One way of viewing the decision to provide a transcript of the evidence is that its availability can assist the jury to the extent that the jury wishes to make use of the resource. The ready availability of the transcript in the jury room reduces the risk that the jury will erroneously reconstruct what was said in evidence instead of asking that passages be read back to them by the judge. It is likely also to reduce internal disagreement on what was said in evidence. The weight to be given to the advantages will depend on whether in a particular case on provision of the transcript the evidence will become reasonably accessible to the jury. In this appeal that is put in issue by the argument for the appellant.
Mr Stevens submitted that the combination of the complexity of the trial issues and the length of the transcript together had created a danger of a miscarriage of justice. In the absence of a detailed subject index to the transcript of such a large volume of evidence, he submitted there was a real risk of jurors focussing on parts of the evidence without appreciating there were other parts dealing with the same issues. In his oral submissions he also said that this compounded the risk that jurors might be less focussed on the evidence actually given knowing they would receive a transcript of it each day.
We see no cause for concern generally or in this case over the risk of failure of jurors to pay attention to the evidence. That argument, unjustifiably in our view, demeans the conscientiousness of jurors. In this case, as we have mentioned, the Judge cautioned against this concern in any event. We are also satisfied the jury was properly made aware that the primary evidence is that which they had seen and heard during the trial.
We are also aware of varying current practices among trial judges in relation to assisting the jury with the evidence including instances where a written summary has been provided by the Judge for guidance. Such practices also can offer helpful guidance albeit at some greater risk than provision of a transcript in terms of ensuring accuracy.
There is no intrinsic merit in the submission that a subject index should be provided. In very many cases we would regard preparation and checking of such a resource during the trial as an unnecessary and inappropriate burden. It also carries its own risks of inaccuracy and incompleteness. In the present case, despite its length, we certainly regard the table of contents which was provided as providing adequate accessibility to the transcript of evidence for the jury. In part that is because the complexity of the issues that the jury had to decide in relation to the appellant’s defence was not in our view great. We have reached this view having read passages in the evidence to which we were referred by the appellant’s counsel, in particular, those concerning the appellant’s alleged knowledge of the company’s practice of maximising claims which was a major issue during the trial.

Notes of evidence: retention in the jury room

Nor do we consider there is anything in Mr Steven’s point concerning the absence of an emphatic direction from the Judge that the transcript was to remain in the jury room. Mr Stevens argued there was a risk of one or more jurors studying the transcript at home overnight more closely than others and as a result being able to exercise inordinate influence on the remaining jurors. The Judge had in fact made it clear the transcript was to remain in the jury room. However, even if the jurors misunderstood that direction the consequence argued for is speculative given that the jury had several copies of the transcript.
In summary we are satisfied that the provision of the entire transcript of the trial to the jury in this case gives rise to no concerns over the integrity of the verdict convicting the appellant. For these reasons we reject ground (a) of the appeal.

Sentence

The Judge saw the situation of the appellant as that of the initiator and motivator of the schemes for claims involved in the fraud. He rightly said they involved blatant deception. He rejected the contention that the appellant was motivated by his perception that he had a higher duty which justified what he had done. He took the view that some of the devices that were employed in the swap schemes had nothing to do with the notion of higher duty, in particular referring to the appellant’s involvement in “maximising” of individual claims that were made.
The Judge set as a starting point a sentence of 5 years imprisonment, which was the maximum, and allowed a deduction of 6 months for the appellant’s previous good record and work in the community.
Mr Stevens argued that the starting point was too high and that some allowance should have been made for the appellant’s sense of mission which had caused him to challenge the effect which he saw vested interests as having on the health system. He referred us to evidence of the appellant’s obsession with the harm being done to people’s health. He had been fortified in his pursuit of that cause by the acceptance of medical practitioners who had taken up the schemes involved.
We accept, as did the trial judge, that the appellant had genuine views about the value of diagnostic testing that could be carried out during the course of consultations with medical practitioners. Clearly he also became highly frustrated with his inability to secure changes to successive governments’ subsidy policy and suspicious of the motives of those who he regarded as impeding such change. There were, however, a number of serious aspects to his offending to which the sentencing judge had to have regard. The appellant was the instigator and driving force behind a highly systematic fraud conducted for over 4 years as a result of which some $5.5 million was paid out from the national health benefit system. The trial Judge’s finding that the fraud was greed motivated was open to him. It was reached after hearing all the evidence and it was not inconsistent with the jury’s verdict. The finding, moreover, is highly relevant to the penalty because it contradicts the appellant’s contention he was substantially motivated by public interest considerations. There is no doubt that he benefitted personally from the fraud. A further serious factor is that the appellant’s dishonest conduct was clearly a major influence on those employees of New Zealand Diagnostics Ltd who were also convicted by the jury or pleaded guilty earlier to criminal charges.
These aspects, along with the lack of contrition, point to a level of arrogance in the offending which is not unusual in cases of major commercial fraud committed by persons in high positions within a corporate or institutional hierarchy. These cases present difficulties in determining the appropriate level of sentencing but the need for the Courts to insist on commercial probity by those in such positions of responsibility and influence in general will require deterrence to be the principal consideration. In the present case we consider the Judge’s starting point of 5 years, while high, was not inappropriate and he allowed as much as he properly could for the undoubted good things the appellant has done in life. We have had regard to the heavy impact of the conviction itself on the appellant and the effects on his family, but these are not unusual features in cases of this kind and, as this Court said in R v Rose [1990] 2 NZLR 552, 557, they do not warrant a reduction in the sentence. We have concluded there is no basis on which we can properly interfere with the sentence of four and a half years imprisonment which the trial judge imposed.
The appeals against both conviction and sentence are accordingly dismissed.

Solicitors

Crown Solicitor, Wellington

[2001] NZCA 360

5 December 2001