Swann v Solicitor-General [2011] NZCA 253 (3 June 2011)

Last Updated: 14 June 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA652/2010 [2011] NZCA 253

BETWEEN MICHAEL ANDREW SWANN Appellant

AND THE SOLICITOR-GENERAL OF NEW ZEALAND Respondent

Court: Chambers, Ellen France and Randerson JJ

Counsel: Appellant in person B F Fenton for Respondent

Judgment: 3 June 2011 at 10 a.m. (On the papers)

JUDGMENT OF THE COURT

A The appeal is dismissed.

B There is no order for costs.
___________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Introduction

[1] The appellant Mr Swann was found guilty after jury trial of three representative charges of defrauding the Otago District Health Board and its predecessor, Healthcare Otago. The trial Judge, Stevens J, sentenced the appellant to nine years and six months imprisonment with a minimum non-parole period of four years and six months.[1] The appellant has not appealed against his conviction or sentence.
[2] This appeal is against a judgment of Panckhurst J issued on 1 September 2010 upon an application by the Solicitor-General under the Proceeds of Crime Act 1991 (the Act).[2] In terms of that judgment, Panckhurst J ordered the forfeiture of various items of property owned or controlled by the appellant and also directed that the appellant pay a pecuniary penalty of some $6 million. The Judge also ordered under s 29(3) of the Act that certain items of property were available to satisfy the pecuniary penalty order upon the grounds that he was satisfied those items were subject to the “effective control” of the appellant.
[3] Mr Swann was charged jointly with a Mr Harford. The essence of the Crown case was that Mr Swann was in charge of the IT department at the Otago District Health Board (the DHB) and its predecessor. Together with Mr Harford, Mr Swann arranged for a company named Sonnford Solutions Limited (Sonnford) to be incorporated. Mr Swann and Mr Harford were then jointly involved in the rendering of invoices by Sonnford (and a predecessor entity) to the DHB which paid the amounts of the invoices to Sonnford believing the invoices to be genuine. In fact, many of them were false. Over a six year period between 2000 and 2006, a total of 198 fraudulent invoices were submitted and paid, totalling in excess of $16.9 million.
[4] Of the total amount of the fraudulent invoices paid to Sonnford, Mr Swann received approximately 90 per cent or $15,116,516. Once received by Sonnford, Mr Swann applied the proceeds in three principal ways:

• (a) $5.3 million was paid into the trust account of Mr Swann’s solicitors, Checketts McKay.
• (b) $9.16 million was paid to a company named Computer South Limited (CSL). This was a company incorporated in 1997 by the appellant’s friend, Mr Peter Ibbotson, during the period from 1996 to 1999 during which time the appellant was a bankrupt.
• (c) $1.99 million was used in the direct purchase of assets, most of which were luxury motor vehicles and boats.

[5] At least six trusts were formed naming Mr Swann, his wife (Ms Devereux) and his children as discretionary beneficiaries. With one exception, all the trusts were settled during the period of the offending. Between 2002 and 2006, five properties were purchased in the names of various trusts or companies in which trusts were shareholders. The appellant had a power of appointment in respect of all but one of the trusts and he was a discretionary beneficiary in all of them.
[6] The Solicitor-General’s case was that Mr Swann had effective control of the funds fraudulently obtained from the DHB and the various companies and trusts through which those funds were channelled.

The Solicitor-General’s application

[7] The Solicitor-General filed an application for confiscation on 3 June 2009. It sought forfeiture of the real estate, motor vehicles and boats purchased using money transferred from the DHB to Sonnford, and an order that property not legally owned by Mr Swann and not forfeited be available to satisfy a pecuniary penalty order; and an order that Mr Swann pay a pecuniary penalty of not more than $15,116,616.37.
[8] The respondents to the application included Mr Swann himself, Ms Devereux and Mr Ibbotson in their personal capacities. The trustees of three trusts were also named as respondents. These were the Fern Tree Lodge Family Trust, the Devereux Family Trust, and the Rowan Court Family Trust. In various permutations, the trustees were Mr Ibbotson, Ms Devereux, Checketts McKay Trustees and Ian Fyfe, a solicitor at Checketts McKay.
[9] In addition, two companies (Organic White Meats Limited and Fresh Free Range Chickens Limited) were joined as respondents. The shareholders of these companies were trusts with corresponding names which were settled by Mr Ibbotson in June 2002. CSL was not a respondent to the application although its sole shareholder was the Devereux Family Trust.
[10] The evidence for the Solicitor-General was presented in the form of detailed affidavits sworn by David Osborn (a supervising senior investigator with the Serious Fraud Office) and Detective S M Watt (an officer of the Dunedin Proceeds of Crime Unit of the NZ Police). For reasons we later elaborate, the proceedings before Panckhurst J ultimately proceeded as a formal proof without participation by Mr Swann in any capacity.

The grounds of appeal

[11] By Minute of 17 February 2011, Harrison J directed that Mr Swann and the Solicitor-General file written submissions. He did so after Mr Swann informed the Court he did not seek leave to be present at the hearing and was content to appear by video-link or to file written submissions. We have received those submissions including a reply by Mr Swann to the submissions of the Solicitor-General.
[12] Mr Swann’s grounds of appeal may be summarised as follows:

• The Judge failed to permit Mr Swann to make representations on behalf of the trusts, notwithstanding his requests to do so and the interests of the trusts were not properly represented.
• The trusts have been deprived of the opportunity to take part in the proceedings and he has been hampered by a lack of computer facilities while in prison and has been obstructed by prison staff.
• At no time did he have any personal assets traceable to the DHB.
• The Solicitor-General has not proved that the trusts or the relevant corporate entities (other than Sonnford) received any tainted funds or that he had effective control over any of those entities.
• The Solicitor-General has not proved that Sonnford’s business relationship with CSL was in any way improper or illegitimate.
• The Judge did not take into account that Ms Devereux and the children were innocent parties.
• Neither Sonnford nor Mr Harford were parties to the proceedings and the Judge took no account of their role.

Procedural history

[13] The history of the conduct of the proceedings in the High Court is important and is now detailed. Initially, Mr Swann was represented by a Mr Beck. Mr Swann’s opposition was on the basis that he intended to appeal against his conviction and he opposed the amount sought by way of pecuniary penalty on the basis of hardship.
[14] The respondent trustees were initially represented by McElroys. However, McElroys were eventually granted leave to withdraw as counsel for Ms Devereux and Mr Ibbotson in their capacity as trustees but remained as counsel for Checketts McKay and Mr Fyfe. On 31 March 2010 Panckhurst J recorded that Checketts McKay and Mr Fyfe intended to abide the decision of the Court on the application and reserved leave for McElroys to be excused from the hearing.
[15] On 25 February 2010, Mr Swann filed a number of memoranda essentially raising very similar points. Three were filed in his personal capacity and five were filed on the basis of Mr Swann’s assertion that he was a trustee of all the respondent trusts including the shareholder trusts in four companies, namely Carey’s Bay Marine Limited, Fresh Free Range Chickens Ltd, Organic White Meats Ltd and CSL. All these companies were parties to the Solicitor-General’s application other than CSL. Most of the memoranda constituted general opposition to the forfeiture of assets on the basis that they were not shown to be tainted. Others opposed the Solicitor-General’s application either by Mr Swann personally or through CSL to the sale of specific items of property.
[16] By a Minute of 16 April 2010, Panckhurst J adjourned the confiscation hearing to give Mr Swann time to prepare an affidavit in opposition to the Solicitor-General’s application. The Judge noted that Mr Swann maintained that Ms Devereux had resigned as trustee of the trusts and that he, Mr Swann, had assumed her previous trusteeships. It does not appear that any documentary proof of Mr Swann’s appointment as trustee has been provided. The Judge indicated he was minded to appoint independent counsel to represent the interests of the trusts, noting that the contingent beneficiaries included infants and unborn children.
[17] On 29 April 2010, Panckhurst J issued a judgment on various issues and dealt with the appointment of counsel.[3] He noted that Messrs Logan and Andersen, on behalf of Mr Ibbotson and Ms Devereux respectively, had both indicated that they were representing their clients in their personal capacities and that it was not appropriate for them to represent the children as discretionary beneficiaries. The Judge therefore directed that an amicus was to be appointed to assist the Court. He suggested the appointment of Mr G de Courcy. The Judge noted that the assets of the trusts were under attack by the Solicitor-General’s applications and a claim being made by Ms Devereux under the Property (Relationships) Act 1976.
[18] Mr de Courcy was appointed as amicus as directed. He filed a memorandum prior to the ultimate hearing, giving details about the trusts and making submissions during the course of the hearing which the Judge described as helpful.
[19] Ms Devereux’s claim was settled and she did not take any part in the ultimate hearing.
[20] Mr Swann filed an affidavit on 28 May 2010. Amongst other things, he expressly accepted Mr Osborn’s evidence concerning the amounts of Sonnford money paid to CSL and Checketts McKay, but he disputed Mr Osborn’s evidence about the use of Sonnford money in the direct purchase of assets to the extent of $1.99 million. Mr Swann denied he had effective control over any of the property that was the subject of the confiscation.
[21] Mr Swann’s application for legal aid was declined, but the Judge approved funding of up to $35,000 from assets previously restrained on the application of the Solicitor-General. Mr H T Young was retained by Mr Swann to represent him in his personal capacity. At a very late stage, and notwithstanding the funding provided for legal representation, Mr Swann instructed Mr Young that he did not wish to take any part in the hearing.
[22] Mr Young filed a memorandum dated 29 June 2010 which we now set out in full:

1. I have received instructions from the First Respondent Mr Swann being that he now withdraws the whole of his opposition to the on notice application for confiscation and related orders dated 3 June 2009 filed in this Court under CIV-2009-412-213 (previously CIV-2009-412-463).
2. Notwithstanding the withdrawal of his opposition to the making of the orders sought, he does not consent to the making of any such orders. This position means that it will still be incumbent upon the Applicant to satisfy the Court that the orders are appropriate. In other words, by way of formal proof as concerns the First Respondent.
3. In terms of the above position, he does not wish to give or call evidence. In addition to this, he does not wish to cross examine any other witnesses and his notice of cross examination can be disregarded.
4. In addition to the above matters, he does not wish to make legal submissions concerning the matter nor does he wish to attend Court personally. He does not wish to be represented by Counsel at the substantive hearing. Notwithstanding this, Mr Young will still remain as his Counsel and Solicitor until the conclusion of this proceeding.
5. There is a further application relating to the provision of legal costs for the First Respondent that remains outstanding. I understand that the Crown consents to that application.

[23] Mr Swann did not attend the ultimate hearing before Panckhurst J.

The decision under appeal

[24] The Judge resolved by consent certain claims made by interested third parties including Ms Devereux. Consent orders were made vesting certain property in her under the Property (Relationships) Act. Relief was also granted under the Proceeds of Crime Act by a declaration that no forfeiture order was to be made in relation to a house property and family chattels vested in Ms Devereux.
[25] On the critical issue of whether the appellant had effective control of the restrained property under s 29 of the Proceeds of Crime Act, the Judge said:

[55] Strictly speaking this question is only relevant in relation to property which is not tainted and which is also held by someone other than Mr Swann. However, I shall evaluate whether Mr Swann is in effective control of the restrained property generally. Otherwise there is a risk that a pattern of conduct, which I think is evident in relation to Mr Swann’s actions, may be lost sight of to a degree.

[56] There are three individuals and one company who are trustees of the various family trusts, namely Ms Devereux, Mr Ibbotson, Mr Grant Fyfe and Checketts McKay Trustees Limited.

[57] Mr Grant Fyfe is a Central Otago solicitor and a partner in Checketts McKay, which firm owns the trustee company of that name. Mr Ibbotson is also the sole director of the two companies which own restrained land.

[58] At the fraud trial Ms Devereux gave evidence by consent. It included this:

I had nothing to do with any of these trusts other than signing the documents as directed and I do not understand what a settlor or a discretionary beneficiary is. I left all that to Michael and Grant.

Later she added:

I am not specifically aware of what properties were owned under the various trusts, as Michael dealt with all that.

[59] Mr Ibbotson was also a witness at the trial. With reference to his role as a trustee and a company director he said:

I did nothing for these entities other than just be there in name and sign documents on [the] instruction of Mike Swann or Grant Fyfe from time to time.

Mr Fyfe likewise gave evidence at the trial in which he said that Mr Swann was his point of contact throughout the relevant period and he gave the instructions in relation to the affairs of the trusts.

Discussion

[60] I am satisfied there is ample evidence in support of the conclusion that Mr Swann maintained “effective control” over those items of property shown in the Schedule as owned by trusts, companies or individual people. This case is characterised by an unmistakable pattern of conduct. Property often purchased using Sonnford money was transferred into the ownership of entities, or persons, connected to Mr Swann. Even where such property is not shown as acquired with Sonnford money, I am satisfied it was held by others in an endeavour to protect the property from subsequent attack (see [54]). There is no other credible explanation for what occurred, particularly given the passive role of those who assumed legal ownership and/or control of the property.

[61] Mr Swann advanced an alternative explanation in his most recent affidavit. He said that following his bankruptcy in 1996 he subsequently adopted a “philosophy” of not holding assets or money in his own name. He instanced the position in relation to his salary from the ODHB, which was paid to Ms Devereux’s bank account and used by her to meet family expenses. Mr Swann suggested that his philosophy explained why assets were held in the names of entities or individuals other than himself.

[62] Whether this explanation is credible is probably beside the point. For present purposes the issue is whether, having orchestrated these various ownership arrangements, Mr Swann remained in effective control of the assets. For the reasons already given, I am in no doubt that the property which became subject to a restraint order in this proceeding remained under the effective control of Mr Swann. Where necessary, it may be treated as his property and applied towards satisfaction of a pecuniary penalty order.

[26] The Judge then went on to consider which property was tainted and thereby forfeited. He was satisfied that, in large measure, Mr Osborn and Detective Watt had been able to trace the source of funds used to acquire the various items of property and thereby to establish that various items were tainted property as defined in the legislation. The evidence of the investigators had been based on relevant documentary records and the Judge accepted that evidence.
[27] The Judge then made specific forfeiture orders in relation to identified items and went on to determine the appropriate amount for the pecuniary penalty order. The amount of the penalty was fixed by adopting the Solicitor-General’s starting point of $15,116,516.00 being Mr Swann’s share of the proceeds of the fraud; reducing that figure by $3,492,583.00 (being the present estimated value of the property forfeited to the Crown); with a resulting balance of $11,623,933.00. The Judge noted that the restrained property still available to part-satisfy the pecuniary penalty order had a value of between $700,000 and $800,000. The Judge then assessed the pecuniary penalty order amount at $6 million which, we note, is a little over half of the net balance of the benefit obtained by the appellant after deduction of the value of the property forfeited to the Crown.

Discussion

[28] We are satisfied that Mr Swann was given every opportunity to defend the Solicitor-General’s application in his personal capacity, but deliberately chose not to do so, withdrawing at the last minute despite the availability of funding for legal representation.
[29] Assuming for present purposes that Mr Swann was validly appointed as a trustee for the various trust entities at some point after his arrest, we are not persuaded that Mr Swann was wrongly deprived of the opportunity to present submissions on behalf of the trusts. He must have been aware of the hearing date through his counsel and yet gave no indication in the memorandum of 29 June 2010 that he wished to appear to present submissions in his capacity as a trustee. Had he indicated a desire to do so at that stage, arrangements could have been made to bring him to the Court from prison to enable that to occur. Any lack of co-operation by the prison authorities at that stage (and we have no evidence other than Mr Swann’s assertion in that respect), was not material since Mr Swann had withdrawn from participation.
[30] Mr Swann had filed his affidavit of 28 May 2010 in his personal capacity but did not file any affidavit in his capacity as a trustee as he could have done if he had wished to do so. Mr Ibbotson, Mr Fyfe and Checketts McKay Trusts Ltd did not take any part in the proceedings in their capacity as trustees despite having the opportunity to do so. Nor did Ms Devereux, who settled her claim and took no further part.
[31] The Judge correctly recognised that the interests of the discretionary beneficiaries under the trusts needed to be represented. He arranged for counsel to represent their interests. In doing so, the Judge noted that Mr Swann could not represent the beneficiaries since this would conflict with his personal position as a primary respondent in the proceedings. There is nothing to suggest that counsel appointed did not properly perform his role. Mr Swann raises the point that counsel did not consult with the beneficiaries. No doubt counsel would have done so if he had thought it necessary.
[32] Significantly, Mr Swann’s submission that the Crown has not proved any illegitimate business relationship between Sonnford and CSL and his submission that the trusts were innocent parties in relation to the receipt of funds fraudulently obtained from the DHB miss the point of the Solicitor-General’s claims under the Act. The evidence provided by the Solicitor-General and accepted by the Judge clearly established the flow of funds from the DHB to Sonnford and thence to Checketts McKay, CSL and the direct purchase of assets. The evidence further established that these payments were made at the direction of Mr Swann. The funds were then utilised, again at Mr Swann’s direction, to purchase real estate, motor vehicles and boats. To the extent the funds were traceable to specific assets, those assets were tainted assets and subject to forfeiture. To the extent Mr Swann derived benefits from the proceeds of the fraud that were not subject to forfeiture, he was subject to the making of a pecuniary penalty order.
[33] Mr Osborn’s evidence was that the funds channelled through Sonnford from the DHB were by far the major source of the expenditure transacted through the Checketts McKay trust account at Mr Swann’s direction.
[34] As to CSL, both Mr Ibbotson and Ms Devereux confirmed that CSL was “Michael’s company” (referring to Mr Swann). It was set up when Mr Swann was bankrupt with Mr Ibbotson as a director and Ms Devereux or the Devereux Family Trust as shareholder. Ms Devereux confirmed the company was controlled by Mr Swann. She maintained she knew nothing of what the company did. Mr Swann admitted he was the manager of CSL.
[35] Mr Osborn’s conclusion was that CSL’s function was the receipt of payments of funds for the benefit of Mr Swann, his wife and family. His evidence also established that some $9 million was transferred from Sonnford to CSL’s bank account and that Mr Swann was the principal beneficiary of assets purchased and other spending made through the company’s bank account. Although there were some other minor sources of income for CSL, 92 per cent was derived from the DHB through Sonnford. Mr Swann’s only other source of income during the relevant period was his salary from the DHB which was paid into a bank account in his wife’s name. Ms Devereux did not work or have any material sources of income of her own.
[36] As to the payments made directly to purchase assets, the affidavit of Detective Watt detailed the purchases and the relevant source of funds. These came almost exclusively from payments made by CSL and Checketts McKay from funds traceable to the DHB.
[37] In relation to the trusts, Mr Osborn’s evidence established the sources of funds used to purchase assets placed in the names of the trusts. Again, the great bulk of funds used to purchase real estate in this way derived from DHB funds channelled through Sonnford and Checketts McKay, although a minority of funds received by the trusts were derived from other sources.
[38] There was overwhelming evidence proving that Mr Swann effectively controlled the entities established in the names of others including CSL and the trusts. In that respect the evidence of Mr Ibbotson, Mr Fyfe and Ms Devereux was compelling. Whether those entities were innocent is beside the point. For the purposes of a pecuniary penalty order under ss 24 to 29 of the Act, the Solicitor-General needed only to establish that Mr Swann obtained a benefit from the offending during the offence period. In assessing the value of benefits derived from the commission of the offences, the Court may treat as property of that person any property that the Court is satisfied is subject to the effective control of the person. We are satisfied the Judge correctly concluded on the evidence that the relevant facts were established to justify the making of the pecuniary penalty order. We note that Mr Swann has not specifically challenged the amount of the pecuniary penalty order and that any claims by third parties to an interest in assets were resolved.
[39] The forfeiture orders have not been the subject of any detailed challenge on appeal. We are satisfied they were correctly made for the reasons given by the Judge.
[40] The fact that neither Sonnford nor Mr Harford were joined to the proceedings is not relevant. The Solicitor-General did not seek to recover from any entities controlled by Mr Swann any greater sum than Mr Swann’s share of the proceeds of the fraud.

Result

[41] For the reasons given, the appeal is dismissed.
[42] Since Mr Swann is a sentenced prisoner, we make no order as to costs.

Solicitors:
Crown Law Office, Wellington for Respondent

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[1] R v Swann HC Dunedin CRI-2007-012-4181, 11 March 2009.
[2] Solicitor-General v Swann HC Dunedin CIV-2009-412-213, 1 September 2010.
[3] Solicitor-General v Swann HC Dunedin CIV-2009-412-213, 29 April 2010 at [28]–[32].