Zuydenorp aka Maynard v The Queen
[2014] NZCA 35
•26 February 2014 at 3.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA254/2013 [2014] NZCA 35 |
| BETWEEN | ISRAEL ZUYDENDORP |
| AND | THE QUEEN |
| Hearing: | 21 November 2013 |
Court: | Harrison, Simon France and Dobson JJ |
Counsel: | M M Dixon for Appellant |
Judgment: | 26 February 2014 at 3.30 pm |
JUDGMENT OF THE COURT
The appeals against conviction and sentence are dismissed.
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REASONS OF THE COURT
(Given by Simon France J)
Introduction
Following a jury trial in the District Court at Christchurch, Mr Zuydendorp was convicted on three counts of making a false statement with intent to deceive. He appeals his conviction on the grounds that his trial counsel, Mr Fairbrother QC, made various errors that have led to a miscarriage. An appeal against the reparation component of his sentence is not pursued and is dismissed.
Facts
Mr Zuydendorp owned a business operating in the telecommunications field. It was a brokering business whereby the company assessed the needs of a client and then matched those needs to telecommunications suppliers. The income for the company came from the suppliers who paid commission on sales, and services supplied.
Around late 2006 Mr Zuydendorp sought to franchise the business. The charges laid against him stem from the ensuing sale process – it is said that Mr Zuydendorp deliberately mis-stated the existing performance of the business in order to lure in prospective franchisees.
Mr Zuydendorp gave each of the three complainants a set of accounts which the Crown claimed were false. Each set of accounts was different, hence the three charges. The Crown case is that Mr Zuydendorp told the prospective purchasers that these profit and loss accounts reflected actual money received from sales when he knew this was not so.
Mr Zuydendorp testified, and disputed the Crown version. He said that the accounts were reflective of actual sales but prepared on an accrual basis. The sales were complete and legitimately included, although money from them had not yet flowed in. The nature of the brokering business meant that the commissions flowed some time after the deal was done, but that did not make the income part of the accounts incorrect. As for the expenses included in the profit and loss statements, Mr Zuydendorp explained that these were projected or estimated based on what a franchisee might expect to incur. Up until that time, the business had been operated as a single entity but the expense structure would change under a franchise. The expenses detailed in the accounts provided to the potential franchisees were an estimate of how that would look. Importantly, Mr Zuydendorp said that this is what the franchisees were told, and the accounts were never represented as actual cash receipts or expenses.
Overview of evidence
The Crown case consisted first of the three complainants. Each gave evidence that they believed the documents represented actual income and that this is what they had been told by Mr Zuydendorp. Each spoke of a process of disclosure whereby forecasts were provided but the complainants wanted harder data on which they could approach their banks. It was their evidence that the profit and loss statements, provided in response to their requests, were represented to them as being indicative of actual cash receipts.
The next group of Crown witnesses were employees of Mr Zuydendorp who testified as to being told to change figures to produce what they, the employees, considered at the time to be a misleading document. One of the employees also testified as to being a reluctant contributor to oral misrepresentations made in his presence by Mr Zuydendorp to one of the potential franchisees.
A further Crown witness was a book–keeper who ran a taxation business. One of the three sets of accounts that form the basis of the charges was produced under her business letterhead. This set of accounts consisted of two pages of figures and one page of notes or commentary on the accounts. This witness had been doing work for Mr Zuydendorp such as preparing tax summaries and other accounting work. As regards this particular document it was her evidence that Mr Zuydendorp had provided her with both the accounts and the notes and asked her to reproduce them unchanged under her letterhead. Mr Zuydendorp’s contrary version was that the witness herself created the document, including the notes, at his request from his business records.
Finally, the Crown called a forensic accountant to analyse various sets of accounts. The accountant noted the paucity of supporting documentation for any of the figures in the accounts. He illustrated in tabulated form concerns about the accounts that had been given to the complainants. In particular:
(a)there were three sets of accounts he could compare, two of which were figures contained in the three documents given to franchisees. The third set of accounts, relating to the same period, had been prepared by an accountancy firm which was providing accountancy services to Mr Zuydendorp and his business. The accounts prepared by the accountancy firm showed a profit for the period in question of $19,000. However, the profit and loss accounts given to the prospective franchisees showed profits of $148,000 and $176,000 respectively for the same period. There was no obvious explanation for the much higher figures given to prospective franchisees;
(b)the differing profit figures in the two franchisee sets of accounts, namely $148,000 and $176,000, reflected the fact that the higher figure covered a longer period of business activity. However it was noted that, unexpectedly, the expenses were the same on both sets of accounts even though for one the period was longer, and some items could therefore have been expected to increase. This pointed to a lack of genuineness.
It was on any objective assessment a strong Crown case that in reality was answerable only by Mr Zuydendorp giving evidence and creating a reasonable doubt as to deceit having happened or at least as to it having been intended. Some expert evidence as to the legitimacy of the accounts, on whatever basis they had been prepared, might possibly also have assisted. But the result was always going to be determined by the jury’s evaluation of three categories of evidence – the three primary documents prepared by Mr Zuydendorp, what the material witnesses said he did or stated and his own account in denial. The case against him rested on elementary allegations about his conduct.
In addition to testifying Mr Zuydendorp called two further defence witnesses. Of these other two witnesses, one was a bank manager subpoenaed to give evidence about funding provided to one of the franchisees. He testified that when providing the funding he understood the figures on which the borrowing was based were forecasts. The second witness was the mortgage broker who had introduced the franchisee to the bank. He likewise said the financing was arranged on figures emanating from Mr Zuydendorp and he understood them to be forecasts.
Mr Zuydendorp’s evidence first traversed his personal background and then developed his extensive experience in the telecommunications industry. He was then taken directly to the three documents that were the basis of the charges. He explained that the sales figures were actual in that the deal was 100 per cent complete. Payments pursuant to that deal would come in over time but it was legitimate accrual accounting to include the income that should emanate from the completed deals.
As for the other items recorded in the accounts, Mr Zuydendorp explained that both the item involving training fees income and the listed expenses were forecasts of what was to be expected for the business when run as a franchise (as opposed to the only current available comparator which was the parent company running as a single business).
Mr Zuydendorp testified that he believed the documents to be accurate and he had no intention to deceive.
It is fair to say there was ample material for cross‑examination and it was effectively used. The first line of cross‑examination focussed on the various descriptions that had been made about Mr Zuydendorp being a successful businessman. Mr Zuydendorp was challenged on this and the poor performance of his company leading up to the franchising operation was pointed out, as was Mr Zuydendorp’s status as a beneficiary only a year earlier. The picture which emerged was of a struggling company. This material must have reinforced for the jury the proposition that franchisees must have been misled to risk putting money in.
The next focus was on Mr Zuydendorp’s emphasis on the fact that the accounts given to the franchisees were representative of accrual based accounting methods. The Crown stressed that, whatever the accounting basis, the reality was that hardly any actual money ever came in to the company apart from the money obtained from the franchise sales. The implication of this, if the jury accepted it, would have been to raise queries about the legitimacy of franchising such a business and the legitimacy of presenting and relying on these accounts.
Related to this topic was a testing by the Crown of the basis on which the accounts had been represented to the potential franchisees – whether it was as reflecting actual sales with income still to be received, or actual income received. Mr Zuydendorp maintained it was the former and the franchisees knew that. The franchisees’ evidence was directly to the contrary.
Bases on which performance of trial counsel is challenged
Mr Dixon identified various areas of complaint which can be consolidated into four topics. These may not capture all the points made but allow for analysis of the substance of the appeal:
(a)failure to follow instructions on how witnesses were to be cross‑examined;
(b)failure to lead evidence that showed the strength of the business, and the business model;
(c)failure to call character witnesses; and
(d)failure to call the accountant who prepared the business accounts referred to earlier and the liquidator of Mr Zuydendorp’s business.
We address each in turn.
Analysis
(a)Failure to follow instructions on how witnesses were to be cross‑examined
Both Mr Zuydendorp and Mr Fairbrother swore affidavits in this Court and were cross‑examined. Having seen and heard each witness, we record our preference for Mr Fairbrother’s evidence wherever they differed. However, the areas of material dispute were limited in nature and number and of relatively limited importance to our decision.
In his evidence Mr Fairbrother set out the basis on which he accepted the brief:
That the appellant and his supporters would assume responsibility for all necessary investigations and brief preparation, and
That I was to determine the tactical approach to the instructions, and
The appellant would commit to a fee payment arrangement, and
I would receive my instructions directly from the appellant and not through a third party, and
The appellant would be required to attend at my chambers in Napier.
Mr Zuydendorp accepted this was accurate but said that matters had not remained so black and white as the trial progressed. He, however, accepted there was never any express revision of this arrangement.
It is clear to us from reviewing the record, and hearing from both Mr Zuydendorp and Mr Fairbrother, that this complaint has no validity. There were occasions during the trial when express instructions were given, and followed by Mr Fairbrother, sometimes we suspect against his better judgment. But equally it is clear that the bulk of matters remained in the camp of suggestions or even firm wishes on the part of Mr Zuydendorp, but with the ultimate discretion lying with Mr Fairbrother to conduct the trial as he considered best.
We have considered the transcript and find in it no material that would support this ground of appeal. It is evident that Mr Fairbrother had familiarity with the material and file, and a plan in his questioning. One would expect no less. There is always scope for differing opinions as to what would be the best approach, but that is not the relevant inquiry under this appeal ground.
It is convenient at this point to address two specific matters. Mr Zuydendorp had assistance from associates who ran an advocacy assistance business. It was they who were to do, and did do, the legwork and investigation. Prior to the trial the associates produced a 153 page letter which was to be sent to the police. The apparent thesis of the letter was that the three complainants could be exposed as liars, and that the prosecution shown to be a conspiracy against Mr Zuydendorp engineered by the officer-in-charge.
It is the failure to put this material to the witnesses that forms part of the complaint. At Mr Fairbrother’s urging the letter had not been sent to the police. He accepts he only read part of the letter prior to trial and in his evidence says he found it very difficult to read. Having ourselves read the document we can only agree, and consider any experienced counsel would not be distracted from his or her task by it.
The difficulties of presenting a conspiracy theory when the trial involves three separate complainants, corroborating witnesses and documentary proof will be apparent to any experienced counsel. We are satisfied there were no instructions to pursue it that were of the type Mr Fairbrother had to act upon. Rather, consistent with the arrangement which left him to decide trial tactics, Mr Fairbrother exercised his discretion not to pursue it and we see no reason for criticising that.
The second matter is that there was an occasion when Mr Fairbrother was not on top of the documentary material when cross-examining a particular witness. This emerges from the transcript and was played out to a certain extent in front of the jury. It transpires that the evening before cross‑examination of this witness, Mr Fairbrother was provided with two boxes of material that he was to use in cross‑examination. He did what he could, albeit at times with difficulty as to the exact document or its location. We have been provided with no evidence on the appeal to suggest that the material in question was relevant and, if used differently, could have made a difference.
(b) Failure to bring out viability of business
Mr Zuydendorp complains that Mr Fairbrother failed to introduce into evidence various documents that he appends to his appeal affidavit. It is said the jury needed to understand the business and the viability of the company, which it would do by receiving this promotional material, and learning of the intellectual property the company owned.
We see nothing in the point. It is not the type of material that responds to the Crown attack which was on the established lack of financial success of the company. There has been no hard evidence produced on the appeal to show the Crown was wrong in its allegations. This continuing lack of evidence is consistent with the forensic accountant’s evidence about being unable to find underlying documentary support such as contracts and invoices. Part of Mr Zuydendorp’s explanation for the deficit of evidence goes back to the attack he wished to make on the complainants, and one in particular. Mr Zuydendorp says one of the complainants hacked into his computer and removed many business records. The police had investigated but could not lay the conduct at the feet of the complainant. Mr Zuydendorp accepted in cross‑examination before us that he had not gone to the other party to the sales and transactions to get a copy of the invoices from them. So the absence of any concrete supporting documentation to illustrate the claimed strength of the company, and the legitimacy of the proffered accounts, remains a significant factor.
It is not clear to us that Mr Fairbrother was ever instructed to lead the promotional material. We note, however, that Mr Fairbrother prepared an extensive briefing document as the basis of the appellant’s evidence. He went through this with Mr Zuydendorp. It must have been apparent to Mr Zuydendorp at that point that the documents were not being introduced. In any event, the failure to put them in as evidence was of no consequence.
(c) Failure to call character witnesses
This is an odd feature of the case. The correspondence shows that from the outset Mr Fairbrother was stressing the need for character evidence. Yet this complaint is that there were character witnesses ready to go and Mr Fairbrother did not call them.
Conflicts in the evidence of Mr Zuydendorp and Mr Fairbrother appear at this point. Mr Zuydendorp says briefs were provided. Through cross‑examination it emerged that in making this claim Mr Zuydendorp was referring to documents that would form the basis of briefs rather than to actually prepared briefs. Mr Fairbrother says he never saw any.
On this conflict we prefer the evidence of Mr Fairbrother. However, we make two observations. Mr Fairbrother’s recollection of events was understandably not always detailed, and it is apparent that he was provided at various points with large quantities of material. We would accept there is a possibility some escaped his attention.
One character witness was the subject of specific discussion between Mr Fairbrother and Mr Zuydendorp. Mr Fairbrother advised that the witness not be called. Mr Zuydendorp, we find, reluctantly accepted that advice. We consider, without detailing them, that Mr Fairbrother’s reasons for recommending the witness not be called represented one plainly tenable view of the potential quality of the evidence, and so no more need be said.
For the appeal three character witnesses have sworn affidavits saying they were available to give evidence at the trial. None append to their affidavit a brief of what they would actually say. It seems from the material available their evidence would consist of affirming Mr Zuydendorp’s standing in the telecommunications industry as a knowledgeable person who works hard, their support for the viability of the concept underlying his company, and their belief he would not jeopardise his standing in the industry.
The latter opinion is plainly inadmissible. As for the rest, it is evidence that would be of limited moment at best. It does not directly portray Mr Zuydendorp as having a community reputation for honesty, and could relatively easily be exposed as having limits. As is well known, character witnesses also often present an opportunity for aspects of the Crown case to be re‑emphasised by being put to the witness who invariably is unclear about the detail of the evidence and allegations against the accused.
It is not necessary to resolve exactly why these witnesses came to not be called. Apart from the one actually discussed, there may have been an element of confusion or misunderstanding. We are satisfied that on the evidence presented to us about what they might have said, the omission to call them was not significant.
It is necessary to record one further aspect of Mr Zuydendorp’s evidence before us. He said that on the night following the closing of the defence case he was still expecting further defence witnesses to be called. The record shows the evidence concluded in the mid‑afternoon and there was an adjournment for the rest of the day. We cannot accept that Mr Zuydendorp had this belief. He witnessed everyone packing up. He must have realised it was the end of evidence. He raised no complaint at the time. Indeed that evening he sent Mr Fairbrother an email expressing his satisfaction with how it had all gone. This is wholly inconsistent with the present claim of believing more witnesses were to be called.
(d) Failure to call accountant and liquidator
In the course of the liquidation, one of the liquidator’s reports noted:
The liquidators have cited significant records supporting the franchise business, including operating manuals, marketing documents, personnel documents, administration documents, proprietary sales documentation, standardised brochures and business model templates. The company clearly owned significant intellectual property and documentation including fully functioning proprietary analysis software, an electronic commissions calculator and Customer Relationship Management (CRM) software.
...
The concept was, as far as we can determine (without conducting a formal audit), one that should have succeeded, and obtained strong returns for those that invested. As to its long term, or on‑going viability, those prospects appeared to be excellent, but as the result of the deliberate actions and inactions of franchisees and undercapitalised franchisees, the company failed. Like all commission income franchises, the return was dependent on the franchisees ability to close business. It also was dependent upon capital injection from the outset.
It appeared initially to be argued on appeal that Mr Fairbrother erred in not having the report itself produced in evidence. However, it came to be accepted this would not have been permissible and that the liquidator herself would need to be called to testify directly to these matters. An affidavit from the liquidator has now been filed for the appeal.
The liquidator advises that the basis for the opinions came from a report provided to her by an associate of Mr Zuydendorp who was managing the liquidation for him. This associate (one of the advocacy associates already referred to) had worked with an industry specialist to prepare a report about the company and its prospects within the telecommunication industry. We have not found the liquidator’s brief particularly clear on the point, but it seems that in essence she just accepted this report’s conclusions and reproduced them.
Again, her evidence does not cause us to have any concern about her absence as a witness. Indeed there would appear to have been risks in calling her if the basis for her opinions emerged as problematic, as it surely would have once tested. The apparent lack of any personal assessment or knowledge could have been quite damaging if she were called as a defence witness. In these circumstances it is unnecessary to dwell on the factual disputes about who was to do what in relation to securing the liquidator as a witness.
The industry expert who assisted in providing material to the liquidator has also filed an affidavit for the appeal. He says he stands by the opinions expressed. The witness does not say for how long he has known Mr Zuydendorp, but indicates he has recently recommended Mr Zuydendorp for a job. His evidence is too conclusory to be given weight on the appeal. Again there is no brief as to the evidence he would have given, and no explanation for such opinions as are expressed. For example, it is said by the witness that he considers Mr Zuydendorp’s business worked when Mr Zuydendorp was doing the selling but not when others such as the franchisees were.
However, there is no effort to address the contrary evidence of poor financial performance, or to expound on the basis for his opinion. The evidence about why this witness was not called is a little vague on both sides, but again we are not satisfied his absence has been shown to be of significance.
The final absent witness to consider is the accountant who prepared the third set of accounts analysed by the Crown’s forensic accountant. It was this set of accounts that suggested a profit of $19,000. It appears that the accountant would have confirmed the business accounts were run on an accrual basis, although this seems to be undisputed evidence. The accountant also seemingly would recount being asked by the officer‑in‑charge to comment on the profit and loss statements given to franchisees, and would record that he refused to accept the police officers’ view that they were representative of fraud.
In our view the notable feature of this evidence is what it does not say. The deponent is the author of the accounts which showed a profit of $19,000. He is not asked to explain why he considers the accounts given to the prospective franchisees, which differed markedly from his own, were legitimate and reasonable, whatever accounting approach underlay them. We regard this omission as significant since this accountant would apparently be in the best position both to comment on the alleged viability of Mr Zuydendorp’s business, and the reasonableness of the documents provided to the franchisees.
Whilst on the topic of expert evidence, the record shows that Mr Fairbrother had advised Mr Zuydendorp that he needed to call some expert financial evidence to respond to the evidence of the Crown’s forensic evidence. Mr Zuydendorp vetoed that, saying he did not consider it necessary. Mr Zuydendorp was, of course, entitled to call such evidence as he chooses, but we observe its absence strikes us as a significant hurdle for the defence to overcome.
Conclusion
There is no merit in any of the specific challenges. More generally we observe we do not accept the thrust of Mr Zuydendorp’s complaints. He is of the view that Mr Fairbrother failed to understand accrual accounting (which we do not accept) and failed to grasp the essence of his defence. It is our contrary view that Mr Fairbrother much better understood the essence of the Crown case than Mr Zuydendorp and his lay advisors and what was needed to counter it to the extent of raising a doubt.
It was in essence a simple case that had considerable depth from the Crown viewpoint. Mr Zuydendorp was always going to be the key defence witness. He was properly briefed. We were shown the written briefing document Mr Fairbrother prepared and discussed with Mr Zuydendorp. No complaint was, or could be, made of its contents or focus.
There were aspects to the appeal that made it weak. Complaints about absent witnesses were not supported by present briefs of evidence which demonstrated useful evidence that might have be given. Mr Zuydendorp expressed discontentment with Mr Fairbrother’s performance but had written emails during the trial and after the conclusion of evidence that said exactly the opposite. We were not convinced by his now claiming that he did not believe what he was writing at the time. More generally, as noted, we consider Mr Zuydendorp has a flawed understanding of the essence of the Crown case and was somewhat myopic in how it was best to be countered. His present challenges to Mr Fairbrother’s performance reflect this misunderstanding.
Result
The appeal is dismissed.
Solicitors:
Public Defence Service, Auckland for Appellant
Crown Law Office, Wellington for Respondent
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